Over the last few years, rates of mortgage fraud at both big and smaller banks and mortgage companies in Canada has been increasing. Standard & Poor’s, a trusted financial services company that analyzes markets, bonds and stocks, has called attention to signs of mortgage fraud in Canada. Specifically, the organization notes that mortgage fraud may have risen by as much as 52 percent since 2013.
The ratings agency, as a result, revised the risk level for Canadian banks to 3 out of 10, which is the same rating the United States currently has. It did not adjust the credit profile for Canadian banks or change ratings for any specific banks. While this may seem like a minor issue, it is an important reminder of how mortgage fraud can impact the economy.
What is mortgage fraud?
Mortgage fraud is the intentional falsification of any critical information in mortgage applications and processing. Sometimes, this fraud occurs at the consumer level, with would-be home buyers or borrowers lying about income levels, employment or even their identities when attempting to secure a mortgage. People do this for many reasons, such as buying an investment property at high risk and wanting to protect their own credit in the event of a foreclosure.
Mortgage fraud can also take place on the bank’s end. Brokers may work with local professionals who place home values above what the market can reasonably support. The mortgage broker gets more commission, while the inspectors or assessors receive more work. It seems like everyone wins, at least until the home buyers get burned by ending up underwater on mortgages for homes that aren’t worth as much as the loan.
How does mortgage fraud impact the economy?
As we can see in the case of Canada, widespread mortgage fraud can lead to concerns about the stability of mortgage and banking systems in a country. On a large scale, it can lead to higher levels of defaults and foreclosures. This can make banks more skeptical, creating more difficulty for those who want to buy homes using a mortgage.
Mortgage fraud can also impact local economies and home values. When prices inflate beyond what the local average income can support, some people end up buying homes when they are highly over-priced. This can cool down the local sales market and drop prices. Similarly, mortgage fraud that results in foreclosures and bank-owned properties can result in a glut of homes on the market, driving down prices and destabilizing local real estate markets.
Since the housing-based recession of 2008, both lenders and prosecutors have been cracking down on mortgage fraud. Whether an individual buyer or a mortgage professional ends up accused, the charges related to mortgage fraud are serious and demand a well-developed criminal defense.