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- Dec 16, 2008
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Fraud in Canadian mortgage applications went up 50% from 400 million to 600 million between 2011 and 2012. With harder and harder qualification standards, we can definitely expect even more mortgage fraud for 2013. The problem is it is affecting mortgage brokers and lenders, who must continually cope with a smaller and smaller pool of potential clients.
Tighter and tighter lending makes it harder and harder for mortgage brokers to find clients and make a living. Therefore, in order to put food on the table, and support their families, brokers are essentially encouraged to fudge documents, turn a blind eye to certain items, and ultimately qualify and lend money to clients who do not technically qualify for a mortgage under new rules.
Even worse than mortgage document and application fraud, these tighter and tighter guidelines are making it increasingly more difficult for existing homeowners and mortgage-holders to qualify when it comes to renewing their mortgages. In other words, everybody who got into the market with zero down and a 40 year amortization 5 years ago, will now have to qualify under more stringent guidelines, increased capital requirements, and shorter amortization periods, and likely higher interest rates.
Unfortunately, mortgage brokers are taught to selectively ignore certain requirements if they are certain their client will continue to make payments. As the average client is likely to make whatever sacrifice necessary to make their payment and keep a roof over their head. This is what is referred to as `soft fraud` or Fraud for Shelter. Overlooking certain lending requirements and issuing a mortgage despite not fulfilling certain guidelines. However, the reality is that as lending continues to tighten, mortgage fraud is only going to grow, and eventually, as debt levels reach historical highs, we only expect defaults to grow as well.
Tighter and tighter lending makes it harder and harder for mortgage brokers to find clients and make a living. Therefore, in order to put food on the table, and support their families, brokers are essentially encouraged to fudge documents, turn a blind eye to certain items, and ultimately qualify and lend money to clients who do not technically qualify for a mortgage under new rules.
Even worse than mortgage document and application fraud, these tighter and tighter guidelines are making it increasingly more difficult for existing homeowners and mortgage-holders to qualify when it comes to renewing their mortgages. In other words, everybody who got into the market with zero down and a 40 year amortization 5 years ago, will now have to qualify under more stringent guidelines, increased capital requirements, and shorter amortization periods, and likely higher interest rates.
Unfortunately, mortgage brokers are taught to selectively ignore certain requirements if they are certain their client will continue to make payments. As the average client is likely to make whatever sacrifice necessary to make their payment and keep a roof over their head. This is what is referred to as `soft fraud` or Fraud for Shelter. Overlooking certain lending requirements and issuing a mortgage despite not fulfilling certain guidelines. However, the reality is that as lending continues to tighten, mortgage fraud is only going to grow, and eventually, as debt levels reach historical highs, we only expect defaults to grow as well.
