Chapter 22: Mortgage Fraud Flashcards
Explain the difference between fraud for criminal activities and fraud for profit.
According to the Criminal Intelligence Service Canada (CISC), mortgage fraud may be committed to further other criminal activities such as the financing of marihuana grow operations, drug labs, and money laundering. Many crime organizations and individuals will commit mortgage fraud to obtain the proceeds of the mortgage without the intent to repay the loan.
In your opinion, is fraud for shelter harmful? If so, to whom and why?
Fraud for shelter is one of the most common forms of fraud in the mortgage industry. This type of fraud occurs when an individual wishes to purchase a home in which to reside with no intent to abscond with mortgage funds or fraudulently sell the property by misstating or misrepresenting his or her status. In most cases this type of fraud involves inflation of the purchaser’s income to obtain mortgage financing. This can be harmful to the Borrower since he or she may not be able to afford the mortgage, leading to financial hardship. It can harm the Lender due to mortgage arrears and defaulting loans, and the Mortgage Brokerage industry as a whole since Lenders may scale back these products if they show a high vulnerability to fraud.
What is the most common factual misstatement made under fraud for shelter, according to Fannie Mae?
Misstatements about liabilities, at 71%.
What are the impacts of mortgage fraud on industry participants?
(3)
Psychological, reputational and economic.
List and describe the typical fraud warning signs.
(5)
Identity
The applicant cannot provide any photo identification, or says that he or she will provide photo identification but consistently does not. In addition the quality of the identification must be considered, especially if it does not appear to be genuine.
If the applicants are not available to meet or if one applicant is never present.
Employment and Income
The applicant’s job letter contains inconsistencies or errors. For example, if it does not match pay stubs or what the applicant has disclosed about the amount of income, the time employed or his or her job title or has spelling or grammatical errors.
If, when verifying the applicant’s employment, the Mortgage Agent cannot find a directory listing for the business, or the business contact number (as provided or as stated on the job letter) is a residential number or cellular number. This information can be obtained by conducting a business phone number search or reverse directory lookup using www.canada411.com or other Internet services.
The position and/or income is inconsistent with the applicant’s age.
Assets
The applicant states that he or she has significant income but little or no assets.
Meeting Location
If the client insists on meeting at a location other than the location of the property to be mortgaged. This may simply be based on convenience, and if the Mortgage Agent’s process includes meeting in his or her office this may not be considered a warning sign. The Mortgage Agent should request a copy of a recent utility bill with the applicant’s address and name.
Contact Information
If the applicant only has a cellular phone for contact purposes (although more consumers are using cellular phones as their homes phone).
How does the Land Titles Assurance Fund assist homeowners who are victims of fraud?
The LTAF is designed to compensate individuals who have suffered financial losses due to errors or omissions in the land registration system and real estate fraud.
What ways can consumers protect themselves from fraud?
(11)
Title insurance for any property they currently own. This can protect against future act of title or mortgage fraud
Document destruction should use paper shredder to prevent criminal from obtaining information
Home inspection: making sure it isn’t a drug lab
ATM: withdraw from Bank ATM
Pin number: protect this
Credit report
Online shopping: make sure its encrypted processing payment
Phone solicitation: make sure you know who you speaking too
Internet phishing: scams
Sin card: do not carry sin card on daily basis
Passwords is unique
What steps has FSRA taken to assist the industry in preventing fraud?
FSRA has taken several steps to assist industry in preventing fraud, including updates to licensing and continuing education course curriculum, guidance to industry on regulations, and creation of industry checklists.
What resources has the MBRCC developed to assist the industry in preventing fraud?
(3)
Brokers’ Responsibilities to Prevent Mortgage Fraud
Checklist for Detecting and Preventing Mortgage Fraud
The Consequences of Mortgage Fraud
What steps has OSFI taken to ensure its regulated entities prevent fraud?
OSFI, through guidelines such as B-20 and B-21, outlines steps that its regulated entities must take to prevent fraud, including identity verification, maintaining adequate mechanisms for detecting and preventing fraud or misrepresentation in automated underwriting systems, income verification and employment status of the borrower.
Straw borrower
an individual who is paid to use their identity to obtain mortgage, financing, or who is a victim of identity theft.
Fraud for Profit: without the intent to repay the loan
(9)
Air loan: provided a property that does not exist (involves lawyer, real estate, vendor, and purchaser)
Value fraud: dishonest appraiser
Title fraud: transfer of title of a property. The most vulnerable homeowners are those owning rental properties or who have high value properties with no existing mortgage. Since approximately fifty percent of Canadians who own property are mortgage free, the potential losses are significant. The most common form of title fraud involves identity theft and impersonation.
Foreclosure Fraud: The scheme involves an individual whose house is being foreclosed upon or who is under a power of sale. The criminal approaches the homeowner and offers to consolidate the homeowner’s debt and pay off the mortgage arrears.
Identity theft
Impersonation
Elder financial fraud
Power of attorney (POA) fraud: written document in which a person (grantor) gives someone else (attorney) the power to make certain decisions on their behalf if they become unable to make those decisions themselves. Fiduciary duties are mostly attorneys that are spouses, relatives, or close friends.
Fraud for shelter: individual wishes to purchase a home in which to reside with no intent to abscond with mortgage fund or fraudulently sell the property by misstating or misrepresenting their status
