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Helping to safeguard clients against fraud has become an important component of a mortgage broker’s toolkit, and for good reason.

In 2023 alone, the Canadian Anti-Fraud Centre processed more than 63,000 reports of fraud, resulting in staggering losses totalling $569 million. These figures likely underestimate the true extent of fraud, as the Anti-Fraud Centre estimates that only 5-10% of incidents are reported. While fraud can impact anyone, older Canadians are particularly vulnerable.

According to Equifax, mortgage fraud stands out among the various forms of financial deception, occurring at a rate 30% higher than pre-pandemic levels. Staying vigilant and knowing what to watch out for are critical skills for mortgage brokers in shielding their clients from the harmful effects of fraud.

What is mortgage fraud?

Mortgage fraud is a complex issue involving deliberately misrepresenting information to secure mortgage loans or more favourable mortgage terms. Perpetrators of mortgage fraud can vary, ranging from individuals exploiting loopholes to family members or industry insiders. Motivations for committing mortgage fraud can also vary, driven by factors such as heightened demand for home ownership, rising interest rates, or the potential for a large financial gain.

Types of mortgage fraud

The Canada Mortgage and Housing Corporation (CHMC) details several types of mortgage fraud to be aware of. These include:

  • Fraud for commission. This occurs when a broker and other parties work together and use fraudulent means to obtain mortgages – and increase the commissions they make from those mortgages.
  • Fraud for profit. This occurs when a perpetrator works with a complicit purchaser to sell a property at an artificially inflated price, which is then used to deceive a mortgage lender or homebuyer about the property’s actual value. This type of fraud misuses the mortgage lending process to steal funds from lenders and homeowners.
  • Fraud for shelter. This occurs when fabricated documents or false information – usually regarding the fraudster’s income or credit history – are used to obtain larger mortgages.
  • Straw buyer schemes. These involve intermediaries posing as legitimate buyers to apply for a mortgage on a home that they have no intention of paying off.
  • Real estate title fraud. Title fraud involves stealing a homeowner’s identity and legal property ownership using fake identification or forged documents. The fraudsters then refinance or sell the home without the homeowner’s knowledge. Title insurance company FCT estimates that at least one attempted title fraud occurs every four business days.

On a positive note, in early June, a new law came into effect in Ontario, providing a strong defence against predatory lending schemes targeting homeowners, especially older Canadians.

The Homeowner Protection Act 2024 bans the registration of consumer ‘Notices of Security Interest’ (NOSI) on land title and deems NOSIs for consumer goods currently registered on title to be expired.

Those conducting NOSI scams would prey on individuals seeking to improve their homes or upgrade essentials like furnaces or hot water tanks. Like a lien, a NOSI would put a financial claim against a property title.

When used fraudulently, unsuspecting homeowners would sign equipment rental contracts and not realize their properties have financial claims applied against them. When they attempted to sell or refinance their homes, they were confronted with demands for repayment of the equipment and high-interest charges.

Older Canadians, a particularly vulnerable group, were often the targets of NOSI fraud. Their limited access to support networks and the fact that retired Canadians tend to be home more often during the day to answer the door or telephone made them easy prey for these deceptive tactics.

With the ban on the registration of NOSIs on land titles, the Ontario Government is taking a significant step towards ending the exploitation that has already targeted and impacted many elderly Canadians. It’s an important victory, but the battle against predatory lending continues.

How to recognize signs of fraud

As trusted professionals, it’s important for mortgage brokers to remain vigilant for signs of real estate fraud. Here are red flags to watch out for.

  • Clients who are encouraged to provide false information on a mortgage loan application
  • A reluctance to disclose crucial details
  • Inflated mortgage amounts significantly higher than the value of the property
  • Discouragement from property inspections
  • Parties who use partial names, such as initials or different names
  • Persons who leave signature lines or other areas of an application blank

Help clients avoid being targeted

These tips can help your clients avoid becoming the target of fraud:

  • Encourage them to be candid and honest in loan applications
  • Advise them never to add their name to someone else’s mortgage unless there is a plan to make payments
  • Recommend that they seek independent legal advice
  • Advise them to conduct thorough property assessments
  • Remind them to verify the credentials of real estate professionals

By proactively educating your clients, you can empower them to recognize potential mortgage fraud and protect and prevent them from falling victim to scams.

What HomeEquity Bank is doing to protect clients

HomeEquity Bank, the provider of the CHIP Reverse Mortgage, is committed to being the most trusted Bank solely focused on helping Canadian homeowners aged 55+ and their families. To this end, HomeEquity Bank’s leaders instill a culture of integrity, encouraging all employees to have the courage to act and do what is right.

Employees at HomeEquity Bank receive training to help them identify potential suspicious activity. The Bank’s customer-centric approach and unwavering advocacy for the 55+ demographic underpins its dedication to helping safeguard clients against fraud. 

At HomeEquity Bank, we’re dedicated to strengthening our partnership with mortgage brokers to protect and empower older Canadians. By working together, we can unlock the potential of your clients’ homes, helping them enjoy a secure and fulfilling retirement. Learn how HomeEquity Bank can help you create a brighter future for your clients. Contact your HomeEquity Bank BDM/BDA today or visit our website for more information.

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