A mortgage brokerage chief shares that suspicious income letters tipped him off to one of the most advanced employment frauds he has seen. It looks like the recent increases in home prices are driving borrowers to get further into debt, leading them to trick lenders into thinking that they afford the additional burden.
Fraudulent Income Letters?
There is an increase in borrowers who seem to be lying in their mortgage applications. A Canadian mortgage brokerage shared to the Financial Post that they’re uncovering suspicious employment letters from individuals in the GTA who are applying for a loan.
"An income letter is proof of income and employment that is provided by an employer to help prove that someone has the means to pay off a loan", said AJ Smith of Homebase Mortgages in Toronto. Lenders scrutinize this piece of document and one ‘closer’ at a brokerage firm recently noticed that 2 letters from different borrowers who are supposed to be from different companies got the same signatures on their letters. Upon further checking, the brokerage firm uncovered 6 more suspicious letters. The firm pulled funding from one of such accounts, but the client never communicated after, which is suspicious and could indicate fraud. Normally, someone who was approved for a loan and is expecting money will complain if they do not receive what they’ve been approved for.
It is alarming that the firm found plenty more suspicious letters and from companies that seem like they do not exist but claim to be companies from the GTA. They do have websites that seem to be too well made for something created recently.
Increasing Fraud in Loan Applications
The Canadian housing market is experiencing low interest rates, more potential buyers, and not enough homes which are driving the real estate prices up and therefore making prospective buyers want to be able to offer more than the asking price. "To afford this, it looks like some people have resorted to padding their income in financial reports while some resorted to other types of fraud such as taking in more debt and providing fake documents to be approved for the additional debt", says Toronto Criminal Lawyer Calvin Barry.
A recent survey by Equifax Canada showed that about 9% weren’t very truthful in their loan applications in February of this year. "People are taking to inflating their income to qualify for more loans and debt so that they can afford to offer more for a home and possibly win in bid wars", said Michael Porter of Haywood Hunt & Associates Inc, a private investigation agency located in Toronto.
Are Fraudsters Getting Better?
Agencies are reporting that document manipulation has been getting more complex and believable and this isn’t just in the mortgage space. It is just more obvious in the mortgage space because there is demand for more homes due to limited supply.
A federal regulator has been warning lenders to be more cautious and to take more time reviewing loan applications. The Office of the Superintendent of Financial Institutions announced earlier this month that there are plans to toughen up the uninsured mortgage stress test for residential mortgages. Heightened vigilance is the theme for other federally regulated financial institutions as well because as long there is a reason for people to commit fraud by inflating their income, they would continue to do so.
