Friday, December 08, 2017

Mortgage fraud becoming more common

Real Estate and mortgage fraud is a growing concern to the industry as high prices in some markets have squeezed buyers and attracted perpetrators. The victims of fraud can include homeowners who find their homes have had mortgages placed against them by unknown individuals. Other victims include buyers in neighbourhoods or in condo complexes whose homes have been artificially inflated or deflated.

Issues of fraud can range from prospective home buyers submitting fake or altered documents including letters of employment, bank statements or tax returns, to money laundering schemes, identity fraud and title fraud.

While some may consider upping the rental received on a basement suite or deciding to leave something out of their mortgage application as harmless “white lies,” that are not doing anyone any harm, the reality is that any type of fraud puts everyone at risk -- lenders, insurers, consumers, and the economy.

In a recent Mortgage Professional Canada Fraud Summit a panel of experts weighed in on the state of fraud in Canada and what’s being done to mitigate risk for all involved.

In an online survey, Equifax found that 84% of Canadians felt the country’s housing market had become too expensive for first-time home buyers. Sixteen per cent thought mortgage fraud was a “victimless” crime. And 8% admitted to making false statements on their own applications.

Why is fraud becoming more common?
The Canadian mortgage industry’s rules and guidelines have become more complex. As prices increase, coupled with short housing supply, some Canadians feel they need to get into the market fast, even if they can’t qualify in the standard way.

In a hi-tech world it’s not always the case that lenders and borrowers meet face-to-face and more and more applications are received over the Internet, fax or e-mail. Then there’s also pressure from consumers to have those deals close quickly.

Types of Fraud

There are two general categories of fraud:

  • Fraud for shelter – There may be no intention to default but an individual commits fraud in order to get a mortgage on a home they could not otherwise obtain or afford.
  • Fraud for profit -- There is an intent to default and/or flip the property, then walk away with the proceeds. For example, title fraud  -- a fraudster assumes the identity of a homeowner, then proceeds to use forged documents to transfer ownership of a property and will use fake identification to get the mortgage on the property, then walks away with the money. 


How do they do it?
Actually, there are many ways but banks and non-bank lenders watch for three of the most frequent methods:

Falsifying Owner Occupancy
This is quite easy to --a rental property requires a 20% down payment or more. However, if a buyer says they’re purchasing an owner-occupied home, with a 5% down payment, then turns around and rents it, there’s not a lot that can be done about that in advance of funding.

Playing with debt
If someone can’t qualify for a mortgage due to a high debt load, they may ask friends or family members to loan them the money to pay off debt, which, of course, does not show up on a credit check. But they still owe the debt.

Lender also look more critically at the following: Private purchases and sales, high ratio mortgages, equity gifts, powers of attorney, recent activity on a title and if the property is free and clear.

The costs of mortgage fraud
There are financial costs --insurer payouts for defaulted loans and police and court costs to deal with offenders. Then there are the costs to the individuals who were not aware of the fraud and who are in danger of losing their homes. There is a reputational risk for all mortgage brokers and the erosion of consumer trust.

What’s next
Detecting fraud has become a priority for the mortgage industry. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is investing in automation with a focus on fraud for commission, increasing income verification intelligence and improving Fraud Trending Reports.
Also, compliance is getting stricter and lenders and insurers are becoming more sophisticated and more hi-tech. They have the ability to model applications and behaviours, which offers a multi-view of a borrower. There is also pattern recognition software used by insurers. 


But, fraudsters don’t go away, they come up with more elaborate schemes. The industry and consumers need to stay on top of it all. So, educate yourself about fraud to better protect yourself.

Friday, October 27, 2017

A time of great change

As you probably know, the mortgage rules are changing once again, effective January 1. The introduction of the minimum qualifying rate (stress test), this time for uninsured buyers, may be the toughest change so far. Uninsured mortgages account for 46% of the country’s $1.5 trillion mortgage credit, according to the Bank of Canada.

 A survey by Mortgage Professionals Canada found that this requirement would disqualify about one in five potential home buyers.

Doug Porter, chief economist for BMO said that the last set of changes took 5 to 10 per cent of buying power out of the market and estimates that the new changes will do the same.

Paul Taylor, President of Mortgage Professional Canada said the new stress test will further reduce purchasing power, especially for first-time homebuyers. “Since everyone must qualify their GDS and TDS limits at least at the Bank of Canada 5-year benchmark, every home buyer now potentially sees their eligible loan amount reduced as a result of an artificial interest rate carrying cost.”

Since this means buyers can afford less house, the changes may dampen the overall market, not just for first-time home buyers. If existing homeowners can’t afford to move up, some may decide to not move at all.

“If there is a reduction in housing market activity between 10% and 15% as we expect, based on the analysis of our Chief Economist, Will Dunning, we would expect to see a large reduction in housing starts as well,” Taylor added.

The Ontario Real Estate Association has called these changes, “overkill” that will hurt middle class families. It’s those families who may not be able to take advantage of better rates and/or better mortgage products at renewal time. This may force them to stay with their existing lender.

“We believe many non-prime borrowers will turn to financing from credit unions, MICs and privates,” Taylor added. “In the alternative space, where interest rates are already in the 6-10% range, having to qualify at a rate 2% higher than contract will disqualify some borrowers. This incents competitors to traditional lenders to offer rates that may be higher but easier to qualify for, as long as they are less than 2% higher.”

Having fewer options is significant for the economy and for consumers.  While these rules will have a minor negative impact on large Canadian banks, it’s the overall mortgage volume from banks, monolines and non-prime lenders that may be affected. This change may impact their overall lending volume an could impact the entire housing market.

“We expect this to be a drag on the overall economy, specially in areas of the country that have had balanced or declining housing market activity,” Taylor said. “There is no doubt that this policy will supress demand, which will have a negative impact on the market and the spin off industries that are reliant on housing market activity. The irony of course, is that the government is at risk of creating the very situation that these policies are designed to avoid by triggering a housing market slowdown.”

And, the change will impact the mortgage broker industry as well.  

Andrew Matheson, Area Vice-President, TMG Atlantic has crunched the numbers and has determined that home buyers will need 20% more income to qualify. “This could make it more challenging for those refinancing.”

“I’m also concerned that consumers may be pushed into higher interest credit products or even turn to their credit cards,” he said. “And new home buyers may have to find a co-borrower or use the bank of Mom and Dad.”

He’s already seen the Atlantic market tightening up, especially in rural areas. “A client who use to qualify for a mortgage in an urban area could qualify in a rural area,” Matheson explained.  “That’s not the case anymore. Lenders are now looking for stronger credit profiles.”

Matheson is fielding many calls from clients and potential purchasers about the implications of the rule changes. “There is a lot of uncertainty,” he said. “I understand the need for changes in hot cities like Toronto and Vancouver, but they’re are a bit over-the-top for Atlantic Canada. The onus is on mortgage brokers to educate purchasers and help them plan their purchase.”

This sentiment is shared by Taylor. “Given the sheer number of changes that have occurred or are about to occur in the past year, the mortgage finance world has become much more uncertain and complex,” he said. “Borrowers, now more than ever, need the expert advice of a mortgage broker to find the right rate with the right terms that suit their individual situation.”

While the new rules do not apply to credit unions yet, those that securitize loans may be impacted since market participants only buy compliant mortgages.

There’s evidence that credit unions are already thinking along those lines. Meridian, one of Ontario’s larger credit unions, says it’s reviewing B-20 even though it “does not technically apply to our business.”

“Meridian will consider that guideline as we are a prudent and responsible lender with a strong balance sheet,” Meridian president and CEO Bill Maurin told BNN in an email.

There may be an upside, however. Despite a slowing economy, consumers remain confident, population growth is strong, job growth has been good and we still have relatively low interest rates.

While January 1, 2018 is the date the new stress tests to take effect, it’s expected that lenders will make the changes before then. That said, now is the best time for Canadians to seek out the advice of a mortgage professional for their expertise and flexibility in the marketplace.
























Thursday, October 05, 2017

Good reasons to use a mortgage broker


Owning a home is usually on a list of lifetime goals. And new home buyers usually have a lot of questions. Some worry about coming up with the down payment, some aren’t sure about their credit scores, others are self-employed, and already know that it can be challenging to get credit at all.

These concerns and any other questions home buyers have can be answered by mortgage brokers. In fact, mortgage professionals are valuable resources who are often overlooked simply because they are not connected to a bank. In some regions, there is still a perception that brokers are last resort lenders. In fact, mortgage brokers have access to most lenders, including the banks, and are uniquely qualified to assist clients get into the best mortgage products.

Angela West, a first-time home buyer in the North Bay area in Ontario decided to use a mortgage broker with her purchase, initially to get a better rate, but it turned out to be more than she expected.      

“The process was very easy, much easier than dealing with the bank. My self-employment wasn't an issue, where it would have been with the bank. My partner has also made very different amounts of money in the past three years, even though last year was a really good year for him salary-wise, so that may have been an issue with the bank as well.”

West also said it was clear to her that the broker took the time to get the best deal – the best product and the best rate. “I liked the fact that someone was on my side.”

The whole experience was a positive one despite the perception some consumers may have.  “I can see where some people may be concerned that a mortgage broker is less "legit" since they aren't working with established financial institutions, but it wasn’t the case. I would definitely recommend using a mortgage broker.”

Bud Jorgenson, Vice-President, Prairies Region for TMG The Mortgage Group said mortgage brokers have an edge with first time home buyers because of their knowledge about the home buying process.

“We fully understand every aspect of the deal, from Purchase and Sale Agreements, working with lawyers, home inspectors, and lenders, to closing processes and the costs associated with that, “he said. We understand title insurance, default insurance, mortgage protection insurance and we are knowledgeable about legal requirements for a variety of different properties.  And because we fully understand it, we are there to help guide our clients throughout the whole process.”

For Ian Syphus, who refinanced his home in Niagara Falls, Ontario to consolidate debt, the process was surprisingly easy and stress-free.

“The Broker did everything, --she prepared the paper work, found the best rates, clarified any concerns -- I just needed to sign,” he said. Syphus also liked that the broker went to his home.
This is a big plus according to Gord Appel, Vice-President, Alberta Region for TMG. “Using mortgage brokers save valuable time for clients by eliminating the need to visit a variety of lenders and fill out multiple applications. Our hours are generally the client’s hours and we can be mobile, which can certainly benefit busy families.”

Follow up after financing was also an important factor for both West and Syphus. “I like the fact that I am always updated on rates via e-mail newsletters,” Syphus added. “And there is constant contact even after the papers are signed – that’s much more personable than banks.”

This is a key reason clients will benefit from working with mortgage brokers, according to Gerald Krahn, Vice-President, and Ontario Region for TMG. “Brokers take time to listen to a client and do what’s in their best interest, not only for the short term but will look at the whole picture 5, 10 years down the road. For example, when some banks introduce a low fixed rate, it may come with certain restrictive conditions. When brokers quickly counter that with the actual facts, the result is a stronger relationship with clients.”

Mortgage brokers are continually focused on the industry and keep up-to-date on changes. “We are truly experts on all things mortgage-related,” added Dan Pultr, Vice-President, B.C. “However, our expertise is not limited to mortgages. We understand our local real estate markets. We also understand credit issues and ways to improve credit scores, with the end result of helping clients achieve their dream of home ownership.

With the changes in mortgage rules and qualifications over the last two years and the rising interest rates, TMG The Mortgage Group continues to offer its brokers the tools and support that helps them better serve their clients.


Find your local TMG mortgage broker at www.mortgagegroup.com

Sunday, September 10, 2017

Equifax Data Breach – Here’s What You Can Do Right Now

It is still unknown how many Canadians were affected by the security breach at credit-monitoring company Equifax Inc., which was revealed on Thursday, September 7. The breach could have an impact of up to 143 million people in the United States. As for Canada, all Equifax said was that the breach affected “limited personal information" for an undisclosed number of Canadians. 

The information stolen include: Consumers’ names, social insurance numbers, birth dates, addresses, credit card information and, in some cases, driver’s license numbers.

The company has established a website -- www.equifaxsecurity2017.com -- where people can check to see whether their personal information may have been stolen. Consumers can also call 866-447-7559 for more information. Here are five tips to help make sure your information has not been compromised.

  1. Check your credit report for free. You are allowed a free copy of your credit report, by request. Then you can see if there have been any credit inquiries. The free version doesn’t give you your score.
  2. Monitor your credit. If after checking with the company’s website, you find there has been a breach of your personal information, consider taking the company’s offer for free credit monthly monitoring reports for a year – after the year is up there is a cost. WARNING: There has been discussion that if you choose to do this you may not be able to participate in a class action suit. Read the fine print.  If you find you have not been affected, it’s still a good idea to keep an eye on your credit score, whether through paying for credit monitoring or accessing a number of free credit monitoring apps that are out there. If your monthly score drops, then it may indicate that something has happened. 
  3. Freeze your credit reports. You can freeze your Equifax account. This restricts access to your credit report, which helps prevent other credit card companies from accessing it to open new accounts.
  4. Keep an eye on bank accounts and credit card statements. Go through all your bank, retirement, and brokerage accounts, as well as your credit card statements to look for any suspicious activity. Report any suspicious charges and cancel your compromised card for a new one.
  5. Put a fraud alert on your credit. This is a free service.  You'll be contacted if someone tries to apply for credit in your name. It lasts 90 days and can be renewed.





Monday, August 28, 2017

How to prepare for rising interest rates

Over the past few years it seemed every expert was telling us that interest rates would be rising, and now after years of record low rates, the Bank of Canada (BoC) has started to raise them. The first increase was in July, the first in seven years from 0.5 per cent to 0.75 per cent, citing “bolstered” confidence that the Canadian economy has emerged from years of slow growth.

Canada’s largest banks matched the central bank’s move by raising their prime rates by a quarter-percentage-point to 2.95 per cent. Prime rates influence the cost of borrowing on floating-rate loans, including variable-rate mortgages, credit lines and student loans. It’s expected the BoC may continue to raise the prime rate incrementally over the next few months and into 2018.  However, economic conditions change and so do outlooks and forecasts.

Fixed-rate mortgages are tied to bond prices and yields and currently they are fairly flat. There is some talk about the impact of risk-sharing going forward in the mortgage market, but for now, all quiet of that front.

So, here we at a crossroads again when getting a mortgage. Do you take the fixed rate or the variable rate? And once again, the answer is – it depends.

Many home buyers choose a fixed rate because they know exactly how much principal and interest they pay on each regular mortgage payment throughout the term. However, when interest rates go down, they can’t take advantage of that to save money on interest.

Variable rates continue to be popular among home buyers, with fixed rates gaining favour because they continue to be relatively low. At this writing, a five-year fixed rate varies from 2.89% to 3.09% while a variable rate ranges from 2.2% to 2.6%.

A study of mortgage data from 1950 to 2007 found that by choosing a variable rate mortgage, Canadians saved $20,000 in interest payments over 15 years, based on a $100,000 mortgage. At that time, homeowners were better off with a variable rate mortgage than a fixed rate mortgage 89% of the time.

In today’s market variable and fixed rates do not look as if they’ll be dropping.  It is possible that rising interest rates are here to stay, but it’s important to ask the question: Is it just a blip or a trend?  Time will tell.

In the meantime, it might be prudent to prepare for rate increases this year and through 2018.  Here are some suggestions:

  • Lock in your mortgage.  When prime rates start rise, variable-rate mortgage holders may be vulnerable. This is a personal decision and is based on your risk tolerance. At minimum, consult your mortgage broker to find out what works best for you.
  • Don’t commit to long-term GICs. It doesn’t make sense to tie up your money for five years in an environment where rates are likely to rise.  Speak to your investment counsellor.
  •  Stay short-term with bonds. When rates rise, bond prices go down. That doesn’t mean stay away from bonds, just invest in the short-term. Again, speak to your investment counsellor.

We have been in an historically-low interest rate environment for eight years now -- it looks as if it may change.  






 

 




Tuesday, August 08, 2017

Enough already!

By Mark Kerzner, President, TMG The Mortgage Group

Changes to the mortgage rules may have gone too far.

Just when we think, when we are told, that the mortgage regulation pause button has been hit, we see the Bank of Canada (BOC) increase its overnight rate by 25 bps, OSFI released a new discussion paper, including a recommendation to qualify all borrowers at 200 bps above the contract rate, and proposed changes to close a number of tax ‘loopholes’, all of which may have considerable impact to our livelihoods. Add to that the ongoing discussion about introducing Risk Sharing in 2018 and a number of us are saying “enough already!”

In terms of the Bank of Canada 25 basis point increase there may be another in the Fall. In 2015 when the price of oil plummeted the Bank of Canada decreased the overnight rate by 50 bps. Even though the banks only passed 30 of those 50 basis points along to consumers, the Bank of Canada essentially has a “free” 50 bps to play with. Notwithstanding mixed growth data, a Canadian dollar that has appreciated approximately 10% this year and inflation data that suggests we remain at the bottom end of the tolerance levels, there is essentially another 25 bps of rate yet to recapture. 

The Office of the Superintendent of Financial Institutions (OSFI) is proposing changes that align with their July 16 announcement and strengthen the expectations they have in a number of specific areas including: 


  •  Requiring a stress test for all uninsured mortgages of at least 2% above the contract rate
  • Requiring that Loan to Value measurements remain dynamic and adjust for local market conditions where they are used as a risk control, such as for qualifying borrowers 
  • Expressly prohibiting co-lending arrangements that are designed, or appear to be designed to circumvent regulatory requirements

We, in the mortgage brokerage industry, have repeatedly made the following requests:

  1. Don't make any more changes without proper consultation and data to support. 
  2. Allow refinances back into portfolio insurance. Make the Loan-to-Value limit 75% instead of 80% if they really consider it risky business. This would be especially important if further regulations were introduced to qualify conventional purchasers at a benchmark rate as it would slow down purchase activity leading to people staying in their houses longer and likely seeking to renovate and improve them instead of moving.
  3. Uncouple the stress test from the benchmark rate (currently at 4.84%) and set it using an agnostic measure. The difference between the 5 and 10-year bond yields could be used as a proxy with a floor set to 75 points.  Create safeguards for clients who qualified under the previous rules to be able to port, renew or refinance based on qualifying at the contract rate.
  4. Apply the newly adjusted stress test to all mortgage applications. This will allow for industry competition among channels and among lenders. Keep in mind that OSFI’s mandate is to ensure the solvency of the financial institutions for which it regulates. If it there is separate qualifying criteria between high and low ratio loans then it may incent people to ‘cheat’ with their down payments to end up in a low ratio bucket but thereby adding risk to banks balance sheets.


Changes to close ‘loopholes’ for ‘income sprinkling’ and ‘passive investments’ could potentially be the biggest changes to our tax system since the introduction of capital gains more than 40 years ago. The mortgage industry’s association, Mortgage Professionals Canada, is consulting with other national industry associations. 

We at TMG are consulting with tax experts so that we have the opportunity to recommend a course of potential action.

What I can say and what I have seen is that a lot of collective voices are definitely more meaningful than a sporadic few. 


Sunday, July 23, 2017

We are TMG -- Our Story

It was 27 years ago this month that TMG The Mortgage Group was born.  With a network of approximately 800 mortgage brokers and agents nationwide, TMG has assisted hundreds of thousands million Canadians find the mortgage to best suit their financial needs. TMG operates on the premise that a mortgage broker provides the best value for consumers and has the knowledge and expertise to assist anyone seeking mortgage financing advice.

We thought it might be a good time to share our story.

And so, it begins: In the early years, the company operated as Kirk capital Corp. and opened its first franchise in British Columbia under London, Ontario-based “The Equity Centre,” led by industry pioneers Grant and Debbie Thomas. Four years later, CIBC purchased the master franchisor and changed the name to The Mortgage Centre. In 1997, Kirk Capital Corp. parted ways with that franchise network and changed its name to The Mortgage Group, becoming an independent privately-owned mortgage brokerage firm.

Both Grant and Debbie are committed to the mortgage industry and are dedicated to the ideals of ongoing training and education as well as increasing professionalism among its brokers, agents and regional mangers as well as in the industry as a whole. Many TMG alumni have gone on to become the industry’s stars and thought leaders.

Debbie’s background in teaching and Grant’s experience in the hospitality industry have served them and TMG well. They are invested in the industry and have developed policies and procedures that assist each agent to be successful and grow their business.

Grant and Debbie are proud to be one of the longest operating mortgage brokerages in Canada and they have been the principals since day one. This shows a strong commitment to the industry. The role of a brokerage is to lead, innovate and provide oversight. We strongly believe that TMG has succeeded in doing just that.

Not only are Grant and Debbie committed to the success of TMG, they have shown passion and dedication for the success of others and the industry at large.  As part of a very influential Western core group of broker advocates in the early 1990s, they were instrumental in ensuring that Western brokers were properly recognized. Through their efforts, mortgage lenders such as Scotia Bank and HSBC added the West to their business market

They have been able to maintain and even strengthen the TMG family in the wake of impressive growth. TMG is not a big, faceless company. It is a small company that continues to grow.

For Debbie Thomas, Partner of TMG, education was the key to helping brokers and agents develop and grow their business. “When we started, mortgage brokers had a bad rep and were considered a last resort. I wanted to educate the public of the benefits of using a broker,” she said.

Over the years, the industry has made inroads into gaining market share, which sits at approx. 35% among all borrowers -- higher among first time home buyers. For Debbie Thomas, that’s still not enough. “We just have to keep sending our message out to consumers and make sure our brokers are well-trained.”

Today, TMG continues to develop unique training programs, customized payroll systems, and personalized marketing materials. TMG also built its own recording studio and remodeled its training facility with full HD, Green Screen, broadcasting capabilities.

TMG, an award-winning brokerage, has attracted mortgage leaders from across the industry and across the country. Its regional sales leaders are experienced and well-respected individuals who work directly with brokers in their regions.

 “TMG The Mortgage Group Canada Inc.  is a special company” states Mark Kerzner, President. “So much of our success is based on the relationship that we have developed over the years with our brokers, lenders and industry providers. We are continually looking to the future for ways of enhancing a broker’s value with an end consumer. At TMG we are on the right path.”