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No More Slack For Broker Cheats

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This year’s Home Trust broker fraud debacle was headline news, and it marred our industry.

It made the public question broker ethics, it made top brass at banks more skeptical about broker-originations and it put brokers under the microscope with regulators.

Fraud from brokers and lender reps, especially the widely publicized variety, is costly in so many ways. It results in

  • greater default risk for borrowers
  • higher potential losses for lenders
  • higher compliance costs for lenders
  • higher investigation and enforcement costs for regulators, and
  • damage to the industry’s image, which can result in higher capital costs and tighter lending guidelines

While small relative to the $1.3-trillion-plus mortgage industry, these costs are nonetheless unacceptable.




   No More Slack For Broker Cheats   

      

No More Slack For Broker Cheats



This year’s Home Trust broker fraud debacle was headline news, and it marred our industry.

It made the public question broker ethics, it made top brass at banks more skeptical about broker-originations and it put brokers under the microscope with regulators.

Fraud from brokers and lender reps, especially the widely publicized variety, is costly in so many ways. It results in

  • greater default risk for borrowers
  • higher potential losses for lenders
  • higher compliance costs for lenders
  • higher investigation and enforcement costs for regulators, and
  • damage to the industry’s image, which can result in higher capital costs and tighter lending guidelines

While small relative to the $1.3-trillion-plus mortgage industry, these costs are nonetheless unacceptable.

It is high time to send a message to brokers who take shortcuts. In particular, the industry must call out guys like Rod (Mehrdad) Nevis of Yespros Mortgages Inc. 

Nevis is aGavel B.C. broker who apparently wasn’t overly concerned with submitting accurate applications to lenders. The Financial Institutions Commission (FICOM), B.C.’s mortgage regulatory body, found that he acted “in a manner prejudicial to the public interest” by

  • failing to determine if borrowers had properties other than those disclosed in mortgage applications, even though he knew or “ought to have known” that was the case;
  • failing to advise lenders that the borrowers were concurrently seeking financing for other properties;
  • preparing mortgage applications to send to lenders on the basis the properties would be owner occupied, even though he knew or “ought to have known” that was the case; and
  • Preparing mortgage applications for submission to different lenders over a short period of time for the same borrower, despite unexplained discrepancies concerning residency, rental income and/or ownership of properties

Nevis was fined $10,000 and got a few other slaps on the wrist. But he will still be allowed to operate as a mortgage broker. No doubt, many are asking why.

Sidebar: The above-noted FICOM investigation revolved around applications submitted on behalf of four borrowers. Here’s the full consent order.

To outside observers, repercussions for broker negligence and/or fraud must seem grossly inadequate. Fortunately, lenders are increasingly sensitive to fraud, they cooperate more with other lenders and they’re now quicker to remove questionable brokers from their approved lists.

But we must do more. It’s time to make examples of shady brokers and increase deterrents. Specifically, lenders, regulators, broker associations (and ideally law enforcement) must work together to issue a clear, unified statement of non-tolerance for application misrepresentation. This condemnation should be shouted from every corner of the industry—via regulatory bulletins, via broker network newsletters, in industry publications and so on. Unscrupulous brokers must be made to acknowledge that intentional application omissions are just as fraudulent as application falsities. They must be made to fear being caught and fear exile from the business.

To the small minority of unethical brokers, bank reps and credit union reps out there, know that the industry is fed up with your chicanery. The shortcuts you take hurt public confidence in mortgage advisors and make it more expensive for originators to operate. Leave the mortgage business. Or count on being made to leave.

 

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Comments

  1. Comment avatar

    Eddy Cocciollo    

    Hi Rob. First, thanks for doing a great job reporting on our industry all year. I look forward to reading your posts and the commentary (most times) afterwards.

    I don’t comment often but I wanted to commend you on the above report on fraud. We all know that fraud will never go away but each of us in the industry has a role to help minimize it. As an industry leader I work with my partners to ensure our reputation isn’t bruised by a few bad apples and, if misrepresentation is apparent, that I personally look into it and, if warranted, act to ensure that agent or broker is no longer associated with our brand.

    The issue becomes, he or she goes down the street to another brand or uses another agent’s ID to continue brokering, or worse, continue misrepresenting. I do see lenders cutting off brokers more often now, since the HT report. Lenders are forced to react more hastily in cutting brokers off. You said it best… we all are fed up.

    Awareness and education are going to need to step up IMO. Articles like these will hopefully bring fear in some of our practitioners, that big brother is watching, and that we, as industry, can’t afford the few ruining it for the masses.

    I do hope that what HT unfortunately went through might be the price we all finally paid. May it be the last.

    Happy New Year!

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    1. Robert McLister    

      Hi Eddy, Thanks for kind feedback and for sharing these perspectives. I too have heard accounts of brokers who’ve been cut off by one brokerage, only to sign on with another. Brokerages have an obligation to perform due diligence on all new agents and that too could be more strictly enforced. Once the MBRCC launches its nationwide disciplinary database (expected in the next year or so), it should improve the transparency of broker infractions. Hopefully brokerages use it, in addition to performing other due diligence like lender reference checks, REDX, police checks and other means to protect their clients and reputation.

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  2. Comment avatar

    Lorne Rackel    

    The lines for reporting a broker in Alberta is clearly defined through RECA. if an insured deal is questionable, they can be sent to the insurers. The lines are not so clearly defined when it is a unlicensed mortgage individual or a customer who is a conventional deal. Who do we report the unlicensed individual to and who do we report the conventional customer to when we think they are playing a game.

    I sent an mail to OSFI asking how we report a non licensed individual and or conventional customer. They sent me a link to the CRA. I believe they said it was not their mandate.

    So what do we do when we think an unlicensed individual or a conventional customer is falsifying information? I have tried to escalate these deals and nothing has happened.

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  3. Comment avatar

    Rob    

    Great article!!

    Let us not forget the so called “soft” fraud, such as misrepresenting a second home when the intended use is a rental. Many out there, including high volume brokers, believe this type of fraud is harmless; think again, it has a serious impact on a lender and insurer. I digress…

    A large part of the problem is, as mentioned, regulators have no bite. Until they have more power the practice will continue.

    Lenders also must play a part and not hesitate to report fraudulent applications, no matter the source, for fear of losing (fraudulent) volumes.

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