Chapter 8

True or False Questions

1.      It is the broker’s obligation to advise the lender if the broker even suspects the authenticity of a borrower’s documents.

True

2.      Fraud involves intentionally providing false statements as well as intentionally omitting true ones.

True – While both do not need to be present in the same transaction, fraud involves either providing false statements and/or intentionally omitting true ones.  For example, an agent may omit information on a borrower’s debts to make the borrower appear to have less of a financial burden than he or she actually does.  This is as much a fraud as making a misstatement.

3.      A victim of identity theft is engaged to commit fraud using an air loan.

False – a victim is by definition not involved in the mortgage fraud, and identity theft does not necessarily mean using an air loan.

4.      Value fraud typically occurs when there is a physical inspection of a property to assess its market value.

False – value fraud typically occurs when there is no physical inspection

5.      Criminals perpetrating foreclosure fraud rely on homeowners to participate actively in the fraudulent scheme.

False – the homeowner is an unwitting participant

6.      Fraud for shelter is one of the types of mortgage fraud but it is relatively uncommon in Canada.

False – this is one of the most common types of mortgage fraud

7.      An employer’s address given as a post office box is a warning sign of possible fraudulent employment documentation.

True

8.      The “Reasonableness Test” for potential fraud involves ensuring that income or assets are in line with the type of employment, applicant age and/or lifestyle.

True

9.      Dates on documentation submitted by a borrower should be checked to ensure that the timelines are plausible.

True

10.  Valuation using an AVM is the one property value method that can be relied upon to be an authentic representation of value in today’s market.

False – while it may be accurate it is also susceptible to value fraud

Short Answer Questions

1.      What are a brokerage’s responsibilities with regards to mortgage fraud as per the MBLAA and its Regulations?

There are three sections of Regulation 188/08 related to this question.

Section 12 reads, “A brokerage shall not act as a representative of a borrower, lender or investor in respect of a mortgage if the brokerage has reasonable grounds to believe that the mortgage, its renewal or the investment in it is unlawful.”

Section 13 reads, “If a brokerage has reason to doubt a borrower’s legal authority to mortgage a property, the brokerage shall so advise each prospective lender at the earliest opportunity.”

Section 14 reads, “If a brokerage has reason to doubt the accuracy of information contained in a borrower’s mortgage application or in a document submitted in support of an application, the brokerage shall so advise each prospective lender at the earliest opportunity.”

2.      List and explain the ways that a broker can detect and prevent fraud in a mortgage transaction.

To detect fraud a broker must be understand the different types of fraud and watch for their warning signs.  Fraud prevention is conducted through verification of information, including:

Identity Verification

Ensure that the borrower’s identity is verified by viewing a piece of photo identification, preferably a driver’s license.

Employment and Income Verification

The broker/agent should verify the borrower’s employment and income by contacting the employer by phone and noting this information in the file. The broker/agent should verify the validity of the contact information of the employer by conducting a business phone number search or reverse directory lookup using www.canada411.com or other Internet services.

Occupancy

If the broker/agent is aware of the applicant’s intent to rent a property that he or she is listing as owner occupied, the broker/agent must advise the applicant that this is in fact fraudulent and that he or she will not be a party to this transaction

Credit

The broker/agent must verify the information found on the credit report with the applicant for consistency. If there are any discrepancies such as a different social insurance number, the broker/agent should obtain documentary evidence that supports the applicant’s claim. Property

When the property to be mortgaged is being valued by a Risk Assessment Tool or an AVM, and since mortgage fraud based on the property is becoming much more frequent, the broker/agent should verify that the property does indeed exist and that it conforms to the neighbourhood by viewing the property, when possible.

3.      Why should brokers and agents be familiar with the different types of documents provided by applicants seeking a mortgage?

Fraudsters are becoming much more tech savvy and can create forged documents that appear identical to the real thing.  By being familiar with the different types of documents the broker/agent can look for errors or inconsistencies within these documents and prevent fraudulent transactions from occurring.

4.      What are some of the warning signs that a broker/agent should look for with regards to an applicant’s job letter and pay stubs?

·         The applicant’s job letter contains inconsistencies or errors. (e.g., 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 broker/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.

·         The position and/or income are inconsistent with the applicant’s age.

·         Employment verifications addressed to a specific party’s attention

·         Employment verifications completed on the same day they were ordered

·         Employment verifications on a weekend or holiday

·         Documentation which includes deletions, correction fluid, or other alterations

·         Numbers on the documentation appear to be “squeezed” due to alteration

·         Different handwriting or type styles within a document

·         Applicant’s job title is generic, e.g., “manager,” “Vice President”

·         Employer’s address is a post office box, the property address, or applicant’s current residence

·         Applicant’s residence is (will be) in a location remote from employer

·         Employer name is similar to a party to the transaction, (e.g., utilizes applicant’s initials)

·         Employer is unable to be contacted

·         Year-to-date or past-year earnings are even dollar amounts

·         Withholding is not calculated correctly

·         Withholding totals don’t increase from pay stub to pay stub

·         Pay period dates overlap and/or don’t correspond with other documentation

·         Abnormalities in paycheque numbering

·         Handwritten paystubs

·         Income appears to be out of line with type of employment

·         Reasonableness test: income appears to be

5.      Why might it be suspicious if a high asset applicant’s investments are not diversified?

This may be suspicious since most high asset individuals subscribe to the notion that the best way to protect investments is to diversify.  Most high asset applicants will have a financial planner who advises this strategy, so if the high asset applicant appears to have all of his or her “eggs in one basket” this should be investigated.