It’s been years since you finished paying off your mortgage, so the letter in the mail from a bank saying you’re in default and now owe money comes as a shock.

Not only did you not take out another mortgage on your property, you’ve never even dealt with that bank before. Yet the documents you’re presented with say otherwise.

At this point, you realize you may have been the victim of fraud.

The chances of that scenario playing out may seem far-fetched, but experts say title and mortgage fraud are fast growing in Canada and homeowners should take steps to protect their properties — and their identities.

Title fraud refers to when the ownership or title of a property is fraudulently changed or documents are forged to allow a fraudster to illegally sell or refinance the property.

The issue gained prominence last year amid two Toronto police investigations in which homes were allegedly listed for sale without the owners’ knowledge, including one where the home was sold.

While those were “extreme” cases, more common is mortgage fraud, where fraudsters obtain a mortgage from a lender under false pretenses, said Daniel La Gamba, a real estate lawyer and partner at LD Law LLP.

La Gamba said a typical case of such fraud involves the perpetrator stealing the identity of a legitimate homeowner — using a fake ID, job letter, credit report or references — to obtain a mortgage through a bank.

If the bank is convinced of the person’s identity, it will advance them the funds for the mortgage, only to find the false owner hasn’t made any payments on it months later.

“Even with all the safeguards in place … fraudsters are getting quite sophisticated in their ability to replicate ID, steal identity,” said La Gamba.

“Sometimes, we’re really left with only our gut feeling. If something doesn’t smell right, then we start digging and asking a few more questions.”

When the true owner receives the bank’s letter demanding that payment, setting off alarms they’ve been defrauded, it can be a “stressful and very costly burden” of proving they’ve been the victim of fraud and shouldn’t be required to pay that mortgage, La Gamba said.

He said the most cost-effective defence for the homeowner is if they already have title insurance — the premium for which typically costs around $900 for a $1 million property, and which covers the entire period of ownership.

“If you have title insurance, they basically step into your shoes and take whatever steps are required to rectify the matter,” he said.

“If you don’t have title insurance, that’s when you’re on your own … and it will be a very costly and time-intensive endeavour.”

Newcomers, seniors most vulnerable

Title insurance companyFCT estimates at least one attempted title or mortgage fraud takes place every four business days. In the past two to three years, the company has refused to insure $539 million worth of mortgages and transfers “on the basis that they were too suspicious for us,” said John Tracy, senior legal counsel at FCT Canada.

He said the reason the real estate sector is such a growing area of focus for fraudsters is simple: “The payoff is huge.”

“Compared to getting a credit card in my name — you might get $10,000 worth of stereo stuff or gift cards. But if you can steal my ID and mortgage my house, the payoff is a magnitude of times bigger.”

Experts say the most common targets of title or mortgage fraud attempts include newcomers to Canada, who are particularly vulnerable if they face language barriers, as well as seniors.

“Generally speaking, fraudsters really like to target homes that are mortgage-free,” said La Gamba.

“The elderly tend to be targeted quite frequently in this scenario. They’ve had the home for 20, 30-plus years, their mortgages are paid off in full.”

Daniela DeTommaso, president at FCT Canada, said the company began tracking attempts at title fraud in 2010, seeing a 70 per cent increase in the first 10 years. She said that rate likely accelerated during the pandemic as reliance on remote technology and digital verifications increased.

“Technology is a fabulous thing, but it’s also created the ability for fraudsters to duplicate identity in a way that, to even a trained eye, is almost impossible to catch,” she said.

“For $5,000, you can buy a printer that can pretty much replicate a piece of identification.”

DeTommaso said FCT monitors “a moving target” of potential red flags. The organization employs a certified fraud examiner and teams of underwriters “whose sole job it is to really look for some of these red flags,” she said.

“As good as our underwriters are, there are schemes that are always one step ahead, so we are now partnering with a company where we’re leveraging digital identity verification that actually goes beyond a physical review of a document,” she said.

Ontario brokers required to monitor for red flags

Last fall, the Financial Services Regulatory Authority of Ontario released guidance aimed at combating mortgage fraud, which set out requirements for brokers “to conduct business in a manner that does not facilitate dishonesty, fraud or any other illegal conduct.”

The guidance included obligations such as monitoring for increased warning signs of potential fraud. It also recommended the use of multi-factor authentication as the best practice for identity verification.

“From our perspective, what a broker needs to be able to demonstrate is that they have taken reasonable steps to identify fraud and that would include … to verify the identity of a client, verify the client actually has the authority to mortgage a property,” said Antoinette Leung, FSRA’s head of financial institutions and mortgage brokerage conduct.

“Anyone who notices these red flags should be following up and looking into them.”

She said red flags could include a person’s name linked to the title of a property looking slightly different from what’s listed on their ID or utility bill. The guidance also highlighted employment letters, which should be cross-referenced to ensure the mortgage applicant’s employer does actually exist and that they work there.

FSRA, which has authority to regulate and sanction licensed mortgage brokerages, brokers, agents and administrators, warns it may take enforcement action if it receives credible information about potential fraud or failure to comply with the law and its regulations.

“If you’re facilitating fraud, and there is no way for you to see evidence that suggests otherwise, then (brokers) will have to step away from that transaction,” Leung said.

This article was written for Canadian Mortgage Trends by Sammy Hudes

Many in the mortgage industry reacted with surprise after learning about a little but very important nugget buried in an OSFI report released earlier this week.

In its report on industry feedback concerning its proposed underwriting changes to B-20, Canada’s banking regulator said this:

“Insured borrowers…are exempt from the re-application of the MQR (Minimum Qualifying Rate) when switching lenders at renewal. This is because the borrower’s credit risk has been transferred for the life of the loan to the mortgage insurer.”

The revelation caught many mortgage professionals off guard. Based on current lending practices, it had been widely presumed that the mortgage stress test on transactionally insured mortgages (borrower-paid), which falls under the purview of the Department of Finance, was federally mandated for both purchases and mortgage switches.

In a statement to CMT, default-mortgage insurer CMHC confirmed the practice.

“It has been a long-standing policy to allow the transfer of a CMHC-insured loan from one Approved Lender to another subject to certain terms and conditions, which include the requirement that the loan is not increased and continues to amortize in accordance with the amortization period approved by CMHC,” the agency said.

It’s important to note that even though the Department of Finance doesn’t require insured switches to be re-qualified under its mortgage stress test, lenders may still choose to do so at their own discretion.

“It is expected that an Approved Lender complete due diligence reviews when accepting the transfer of CMHC-insured loans, as in so doing they assume all responsibilities of the original Approved Lender,” CMHC added.

• What is the mortgage stress test? The mortgage stress test for default-insured mortgages (those with a down payment of less than 20%), was introduced by the Department of Finance in 2016. Similar to the stress test for uninsured mortgages, which is overseen by OSFI, borrowers must qualify at the higher of the MQR (currently 5.25%), or two percentage points above their contract rate, whichever is higher. In today’s high rate environment, practically all mortgages are being qualified at the latter.

• What is a mortgage switch? A mortgage switch is the process of a borrower taking their existing mortgage from one lender to another, either at or prior to renewal.

“We recognize that this may be new information to some brokers and lenders,” Lauren van den Berg, President and CEO of Mortgage Professionals Canada, told CMT. “However, this does not mean that lenders will not conduct their own prudential risk assessment, such as employment or income verification, to mitigate against any fraud or misrepresentation.”

Tyler Hildebrand, a mortgage broker with Saskatchewan-based oneSt. Mortgage, said he was excited to learn about the exemption, particularly since he believes it will lead to more choice for borrowers and should “open up the competitive landscape” for the vast majority of his high-ratio clients.

“There’s no question that a certain percentage of borrowers had the impression that they had no choice but to accept a less-than-attractive offer from their existing lender,” he said.

For OSFI’s part, while uninsured mortgage switches still face re-qualification under its own stress test, the regulator says it will “continue to monitor for evidence of uncompetitive rates for borrowers who may be unable to switch lenders, and we will take action if warranted.”

More insured switches are likely to take place, some say

Now that this exemption is becoming widely known, expect to see more lenders stepping in to offer these kinds of deals and brokers offering switches as an option to their insured mortgage clients, some say.

“Small lenders are likely to step up and offer it,” Ron Butler of Butler Mortgage told CMT.

Hildebrand agrees that they’re about to become more prevalent.

“I imagine in short order the entire landscape will adopt the policy pretty quickly,” he said, adding that will be a good thing for borrowers.

“Increased consumer choice, especially in a rising rate environment, will protect a lot of borrowers from a ‘take it or leave it’ type scenario,” he noted. “That said, I don’t believe this will have a material, or really any impact on market rates.”

Sources told CMT that just two lenders, Radius Financial and THINK Financial, were aware of the exemption prior to this week and had already been doing insured mortgage switch deals.

Dan Eisner, founder of THINK Financial, told CMT the news that insured switches aren’t federally mandated to be re-qualified under the stress-test is a bit of a “red herring.”

“Just because the insurer doesn’t require a new stress test doesn’t mean the lender doesn’t,” he said.

Asked when he first became aware of the exemption in the federal regulation, Eisner said “it was always a fact.”

“These were always the rules. The government didn’t hide anything here,” he said. Eisner added that the volume for these kind of deals is “very small,” and that he doesn’t expect many lenders will rush to offer them.

Switches still require thorough underwriting

While many in the industry are learning that insured switches don’t need to be qualified under the mortgage stress test, Canada’s national association representing mortgage professionals made clear that default-insured mortgage switches still face rigorous underwriting standards.

“As is well known, lenders are required to immediately report to the mortgage insurers if false or misleading information has been provided or is suspected in an insured mortgage application,” MPC’s van den Berg noted. “If a lender does not do an appropriate risk assessment and misrepresentation is found, any insurance claim may be null and void leaving them responsible.”

Hildebrand echoed the stringent due diligence that takes place for such deals.

“On a switch to a new lender, the file receives full underwriting, including an evaluation of LTV and verification of income,” he said. “There is no situation where a lender or investor would onboard risk without properly assessing said risk.“

This article was written for Canadian Mortgage Trends by:

Maybe I work with your bank already.  Except… I might have a better option.  It’s worth asking!  I just did a quick scan and from what I just saw The Dominion Lending Centres network has access to at least 76 lenders (and some local credit unions we work with I noticed weren’t on this list, so there’s even more!).

The following article was just published on Canadian Mortgage Trends:

First National comments on underwriting partnership with BMO, says move is an “endorsement of the channel”

BMO’s decision to work with First National as its underwriting partner for its return to the broker channel served as an endorsement of both FN’s services and the channel as a whole.

Those were the comments First National President and CEO Jason Ellis delivered as part of the lender’s second-quarter earnings call.

As part of BMO’s announced re-entry to the broker channel starting in early 2024, the bank confirmed it would be partnering with First National to provide its underwriting and funding services.

In comments made to CMT at the time, Justin Scully, Head, BMO BrokerEdge, said they chose First National based on its “discipline” and 30-year track record of broker underwriting and servicing.

Ellis was asked about the partnership during First National’s latest earnings call.

“To the extent that BMO made the decision to outsource the activity of adjudication and fulfillment of the mortgage applications, I can’t speak to definitively,” he said. “But I imagine having been absent from the channel for a period of time and perhaps viewing the success of TD by outsourcing that activity, may have turned their mind to the idea.”

He added that First National is “thrilled” to have earned the mandate, which he called a “great endorsement for the channel, and we think it’s a great endorsement for the service we provide here at First National.”

And while Ellis said the underwriting and servicing deal will be a “2024 event,” he noted that “very, very heavy lifting has now been done.” He also confirmed that the underwriting partnership with BMO will be “very similar” to the work it provides to its two other counter-parties, TD and Manulife.

The future of big banks in the broker channel

Asked if he thinks it’s just a matter of time before the other big banks make their own moves into the broker channel, Ellis said there’s no indication of that right now.

“I guess there’s always a risk of having one share diluted as more and more participants enter the market, but I right now don’t have any clear indication that the other [big banks] are on the verge of making any significant changes with respect to their view of how they access the market,” he said.

For now, he said First National’s opportunity to work alongside the big banks as a service provider is “a great diversification opportunity for revenue streams in a way to leverage our core competencies of underwriting and both servicing, which we continue to provide as a third-party service as well.”

No outsized risk among FN’s variable-rate portfolio

In his prepared comments on First National’s lending portfolio, Ellis confirmed that there are currently no heightened challenges being posed by the lender’s variable-rate clients.

Part of the reason is because First National offers a true variable-rate mortgage, also known as an adjustable-rate, where payments automatically adjust based on changes to the prime rate, which keeps clients on their contracted amortization schedule.

He added that clients are now overwhelmingly choosing fixed-rate products, a trend being seen industry wide among new originations. First National reported that just 8% of its borrowers chose an adjustable-rate mortgage in the second quarter, down from 62% a year earlier.

“Also through the quarter, there was an unusually large number of borrowers selecting 3-year terms,” Ellis added. “I think some borrowers, perhaps advised by their brokers or on their own terms, viewed a shorter term, albeit at a higher rate, as the better strategy as they looked ahead to an earlier renewal and an opportunity to access what they viewed perhaps lower rates in the near future.”

Q2 earnings overview

• Net income: $89.2 million (+61%)
• Single-family originations (incl. renewals): $7.4 billion (-12%)
• Mortgages under administration: $137.8 billion (+8%)
• 90+ day arrears rate: 0.6%

Source: Q2 2023 earnings release

Notables from its call:

First National President and CEO Jason Ellis commented on the following topics during the company’s earnings call:

• On stable earnings despite lower originations: “Despite lower originations overall, our business model proved its resiliency. Recurring revenue from servicing and net interest earned on our portfolio of securitized mortgages delivered expected stability to our financial results. Key to maintaining these predictable and recurring revenues is the continued growth of mortgages under administration even during periods of reduced originations.”
• On the importance of the broker channel to the big banks: “The banks recognize the scale and continued growth of the broker channel as a source of distribution for residential mortgages. I think it continues to be an increasingly relevant place to originate. And I think demographically, younger and newer borrowers are using the Internet and nontraditional channels to access financial services generally, including mortgages…
• On the financial impact of borrowers’ preference shifting back to fixed rates: “…there is a hedging aspect to committing on a fixed rate, which doesn’t exist on a commitment for an adjustable rate. Otherwise, our math to determine the appropriate rates on both products is similar and should result in similar outcomes for us.”

• On lower mortgage prepayments: “Our return to more traditional prepayment speeds has been an important factor in facilitating [mortgages under administration] growth. Higher mortgage rates have reduced the incentive to refinance midterm and more mortgages are reaching maturity, resulting in more renewal opportunities.”
• On First National’s Alt-A portfolio: “New Excalibur originations were down consistent with the overall residential experience. Arrears in the Alt-A book are flat compared to last quarter, and there has been no meaningful change in any of the average portfolio metrics, like loan-to-value, credit scores or debt service ratios.”

• On origination forecasts: “In light of the last two rate hikes by the Bank of Canada and the marginal impact to affordability, we are reviewing our expectations for residential originations in the second half. We no longer anticipate that originations in the second half will exceed those from the same half last year. We still believe, however, that on a relative basis, the second half will compare to last year more favourably than the first half did.”

First National Q2 conference call

This article was written by:

Just read a great article on Real Estate Invesment Properties vs other options, CLICK HERE to read in full.

The quick review: in terms of cashflow, purchasing an investment property right should be compared against other investments.  For the long term, in terms of asset appreciation, well that may be another story!

As always, best to speak with your team of professionals to see what makes sense for your situation and comfort level.  If you don’t know where to start, call me and lets come up with a plan.