Mortgage fraud has been in the news this past year. But what exactly is it? Two trends in mortgage fraud are fraud for shelter and fraud for profit. Mortgage fraud is a serious concern for banks in Canada as it can result in significant financial losses for lenders and can also have broader economic consequences, such as contributing to inflated housing prices and instability within the housing market. 

Based on Equifax Canada’s Fraud Trends report, the biggest concern for mortgage lenders in the second half of 2022 was falsified financials. Approximately 71 per cent of mortgage fraud is related to false information such as account statements, pay stubs, applications, and notices of assessment. Although the recent Equifax report data shows that mortgage applications are down, mortgage fraud rates were up almost 32 per cent in Q4 2022 compared to Q4 2021.

 

Fraud for profit vs. fraud for shelter 

 

Mortgage fraud for profit occurs when an industry professional uses inaccurate information to secure a mortgage. An example of profit-driven fraud is when a lender falsifies or distorts financial details of an applicant’s income, occupation, or credit, with the intention of getting greater equity or optimizing profits on a loan deal.

Whereas fraud for shelter is when a borrower purposely misrepresents or exaggerates information so that they can qualify for a mortgage they wouldn’t otherwise get if the information they provided was accurate. An example is when an applicant misrepresents their income, provides false bank statements, or is dishonest about their employment to retain or acquire a house. 

“When we look at the mortgage market, we see a continuing drop in housing value and availability. Add in the lack of affordability due to high interest rates and economic costs, and it makes sense that debt levels and financial stress indicators have been rising — a potential signal of increasing first-party fraud risk,” said Carl Davies, Head of Fraud & Identity at Equifax Canada.

 

What role do lenders play in mortgage fraud, and how are they impacted?

 

It's hard to turn away business when performance and shareholder value are in the mix. In some instances, lenders  may not fully understand their fraud risk exposure and in turn, can make false assumptions about the risk associated with certain mortgages. 

As a lender, mitigating risk in real-time can help reduce future fraud losses and increase revenue. Protecting yourself against fraud can also improve your client journey, and strengthen your customer strategy. 

 

What can lenders do to prevent mortgage fraud for housing? 

 

Lenders can help prevent or detect mortgage fraud by: 

• Verifying borrower information and complying with Know Your Customer (KYC) obligations

• Detecting and reporting fraud by having systems and fraud detection solutions in place

• Completing due diligence with brokers and other third parties involved

• Monitoring for red flags, such as borrowers being reluctant to provide documentation or applying for loans significantly larger than what their income would support

To lessen the practice of mortgage fraud, lenders and mortgagees should be educated on real case scenarios to learn the impact of bad practices and lack of due diligence. There is an opportunity to reduce mortgage fraud through a greater understanding of the legal and moral obligations of lenders to conduct business according to Canadian laws. 

As mortgage fraud continues to evolve, fraud prevention platforms can help protect your business through a combination of advanced analytics, robust data access, and machine learning. 

 

If you want to learn more about how we can help mitigate mortgage fraud and identify risks, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

 

This article is published by Equifax Canada Co.® 2023. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business  advice. 

 

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