Fraud. It is a word that no mortgage professional, lender, or regulator likes to hear never mind dealing with the consequences of this type of crime. Make no mistake, fraud is a crime, and the consequences are must deeper than most people realize.
Everyone in the Haystax family is already very aware of our policy of zero tolerance for fraud and a recent CBC Marketplace investigation has only reinforced our position. Let's dive into the article a bit to examine what was discovered.
According to the article 6 out of 10 Realtors in the investigation offered to facilitate the closing of the purchase of a home. That is a staggering number even if you consider the small sampling that was taken. Even with a reasonable margin of error it means that too many professionals are OK to either facilitate or turn a blind eye to fraud. This includes mortgage brokers who either do not do their required due diligence, or that openly facilitate these transactions.
This is something that we should all be concerned about for many reasons. The first is the considerable damage that can happen to the consumer. Our customers rely on us for ethical advice that helps them secure a strong financial future. That means securing them a mortgage, providing sound advice, and ensuring that they are not unduly place in harm's way. In fact, these are clearly outlined in all of the consumer protection laws and regulations that apply to mortgage professionals across the country. When a borrower is placed in a mortgage that they cannot truly afford, it creates economic hardship and can even result in the borrower losing their home, financial standing, and in some cases even result in loss of employment or criminal charges.
Our lender partners also rely on the quality of the application, information, and documentation we provide. While they too need to do their due diligence, their requirements do not negate the legal necessity for us to conduct our own due diligence. This is not just good business practice; this is also required under the law.
When we do not do our jobs, and a deal is funded that contains fraud there are real world consequences for lenders. Most mortgages in Canada are "back insured" by either CMHC, Sagen, or Canada Guarantee. This enables these mortgages to be packaged as securities and sold on the market to enable lenders to secure new funds to lend. When a mortgage contains fraud of any type, the lender who booked and funded the mortgage is often required to buy the mortgage back at a premium, charged a penalty, and if there are consistent issues can even lose their investor funding. That means less lender options, higher rates, and even tighter lending guidelines that can frustrate those that are honest and do not conduct fraud.
Perhaps an even bigger issue is that the vast majority of mortgages that are funded receive some form of government guarantee through the three mortgage insurers. It is estimated that the government of Canada (the taxpayer) is exposed to well over one trillion dollars in mortgage debt through these insurance programs. If one in five mortgage transactions in Canada contain some form of fraud, it means that at minimum there is in excess of 200 Billion in fraudulent mortgages on the books today. To put that into perspective, the mortgage broker community funded about 150 Billion in mortgage volume in 2021. What most mortgage and real estate professionals do not seem to understand is the long-term consequences of this highly inappropriate behaviour are. Tighter regulations, tighter lending guidelines, and less trust of these professions and their ability to operate ethically.
Both Realtors and Brokers work on a 100% commission structure where they are paid based on the closings that occur. As the market becomes more challenging, it means less deals and more acceptance of "grey" areas to drive income and satisfy the borrower's needs. We even start to see those that are not active participants in shady dealings start to consider them as an option. If the broker down the street, does it and gets away with it, well why can't I? It's just this one deal, I will never do it again, and many other things to justify skirting the rules in order to close a mortgage. It might seem innocent at the time, but there is no such thing when it comes to protecting our customers, our livelihoods, and in fact the future of our industry as a whole.
Regulators pay attention even when we think they are not and that is a very good thing. As much as Realtors and Brokers might complain about tightening regulations, but the reality is that regulators react to what they see happening. With every complaint they receive, every news story, and every report of fraud they are challenged with how to balance the needs of the industry with protecting the consumer and other players that are exposed to risk. In the end, regulators will - and should - be focused first on protecting consumers from being placed in circumstances that could result in harm. That will always mean tighter regulations because when fraud is occurring it means we are not capable of policing ourselves.
If, as an industry, we want to be taken seriously and respected for the work we do, our focus must always be on doing what is best for our customers and partners. We must work together to find legal and ethical solutions to help house Canadians and protect the industry that provides thousands of Canadians with jobs.
Haystax is the first, and in my knowledge the only, brand in Canada that has defined policies pertaining to fraud and the requirement to report ANY suspect transactions for review to Head Office. Our policy includes a defined fraud reporting form as approved by regulatory investigators across the country.
We know that as rates increase, and the property market continues to experience some challenges, getting deals done can be difficult. That doesn't mean that we suddenly forget our ethical and legal obligations, it just means that we need to be better and stay focused on what matters most, the customer - not the commission. At Haystax we always say: "Focus on the customer first, the money will follow" and we mean it. By focusing first on the customer and providing sound ethical advice we protect our business, our lender partners, and most importantly our clients from potential harm. We may not do all the business and have to turn away a deal, but we need to remember that the commission on one deal is not worth our careers, our business, or the future of our families.
Haystax will always work to support our members in their continued drive to be successful, but it must be done the right way, or we will all lose in the end. If you, at any time, feel uncomfortable with something you are being asked to do or with documentation, ask for help and report. It is not only the right thing to do, but also the best way for you to protect your future as a mortgage professional.