Mortgage Broker

8 | summer 2017 cmba-achc.ca CmB magazine editorialsummary It IS tIME to Do SoME FaCt checking on the reporters who perpetually warn about the evils of "shadow banking" – you know: the ones providing the public with almost-weekly tales of shock and horror from the mortgage world. at readers gobble up this poorly researched tabloid fodder is confirmed by a simple scan of the comments below the articles, which generally decry the mortgage and real estate sectors, predicting a swi market collapse. Here, we will look at various statements of alleged fact contained in a two-part front- page feature in the Vancouver Sun called "Risky mortgages, shadow bankers threaten Vancouver housing market's stability" (June 17 and 19) written by reporter Sam Cooper. We have written previously about the fallacy of referring to alternative mortgage lenders as shadow banks. While it is worth repeating that alternative or private lenders are neither banks nor shadowy, I shall not cover that same ground here, but shall instead analyze various allegations from the article to determine whether they are true or unsubstantiated. AllegAtion: Mortgage fraud is on the rise Sam Cooper: "FICOM's stats show complaints roughly doubled from 109 in 2013 to about 200 in 2016, and about a third of complaints allege loan application fraud." Fact Check: ere are many hundreds of thousands of mortgage transactions conducted in B.C. each year (of course, this is an estimate, as the exact number is not known). An increase of 109 to 200 mortgage broker complaints relating to – let's just say 100,000 annual mortgage transactions – would indicate an increase in the transaction-to-complaint rate from one tenth of a per cent to two tenths of a per cent. When looked at in this context, the number of complaints appears to be rather minuscule, and at a minimum does not reflect a crisis in the industry. In addition, we know that the volume of transactions in the real estate and mortgage sectors have picked up significantly from 2013 to 2016. Naturally, if there are more mortgage transactions taking place, there are going to be more complaints logged to the Registrar. Given this increase, the percentage of complaints might not actually have increased that much at all from 2013 to 2016. Orders made by the Registrar to discipline mortgage brokers (for regulatory matters which are not necessarily fraud-related) are objective criteria for identifying an increase, or lack thereof, in mortgage fraud. ere were five orders made against B.C. mortgage brokers in 2016, but there were five made in 2010 too. With more than half of 2017 expended, there has only been one order made against a mortgage broker. By this standard, an increase in mortgage fraud simply cannot be found. AllegAtion: The increase in mortgage fraud is connected to an increase in shadow banking Sam Cooper: "Massive and risky home loans are increasing in number across Metro Vancouver, while mortgage fraud cases are also on the rise, connected to the growth of so-called 'shadow banking', a Postmedia investigation shows." Fact Check: In the two-part feature, Sam Cooper makes various generalizations, discusses several regulatory cases, but provides no actual data to support his contention that mortgage fraud is caused by or connected to shadow banking. In addition, as most mortgage brokers know, there is a substantial amount of mortgage qualification fraud within the banking sector – in recent history, statements of claim against one bank showed several hundred connected parties (many internal to the bank), all named as defendants, conspiring to commit mortgage qualification fraud against the bank. e most massive mortgage frauds in Canadian history have occurred within the banking system. Reporters should keep in mind that mortgage brokers are regulated under licensing regimes; these regimes are focused on regulating market conduct, which includes mortgage fraud. While bank regulators, OSFI and the Financial Consumer Agency of Canada are concerned with mortgage fraud, these regulators do not administer market conduct a Vancouver Sun article on the alleged horrors of the mortgage market gets a much-needed reality check, courtesy the CMBa By SAmAnthA gAle, CmBA exeCutive DireCtor Keeping the Media Honest the most massive mortgage frauds in Canadian history have occurred within the banking system.

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