Banks defend home-fraud record
Industry says lenders are ‘prudent, conscientious,’ perform ‘due diligence’
Excerpt from an article by Harold Levy - Toronto Star
In the face of recent blistering criticism of their mortgage-lending practices by a Toronto judge, Canada’s banks have countered that that they are constantly on the lookout for fraud.
They say it is unfair to single them out when other parties, such as lawyers and real estate agents, have a critical role to play in ensuring that real property transactions are clean.
Superior Court Justice Randall Echlin sent shock waves through the Canada’s finance industry last week in the case of a North York couple whose luxury condominium was stolen by identity thieves.
He found instead that the bank had delegated responsibility for checking out the loan to a mortgage broker, “important tell-tale signs of the fraud” had been ignored,” and that “if any of these simple matters had been noticed, the fraud might have come to light.”
It has also led to criticism that the banks are too focused on competition and keeping shareholders happy to take needed steps to stem what the judge bluntly called, “a serious mortgage fraud plague” in Ontario.
But the Canadian Bankers Association (CBA) insists that its members, which include all of Canada’s major banks, are intensely concerned about the harm caused by mortgage fraud, that they work closely with the police, and that they are doing their utmost to prevent it.
“I can say very generally that banks are prudent and conscientious mortgage lenders and that mortgage defaults are incredibly low,” CBA spokeswoman Maura Drew-Lytle told the Toronto Star.
“Before granting a mortgage, banks complete a thorough due diligence process.”
She also stressed that the banks are not Canada’s only mortgage lenders — they represent about 60% of the mortgage lenders in Canada — and that banks are only one of the “many parties” involved in real property transactions.
Other parties, such as lawyers, real estate brokers, mortgage insurers, and appraisers “have to do their due diligence, too.”
But Ontario’s real property appraisers say the banks are contributing to the plague of mortgage fraud sweeping Ontario by relying on computers — instead of human beings — to make their funding decisions.
Brent Williams, president of the Ontario Association of the Appraisal Institute of Canada, says reliance on this technology “to get a quick turn around on mortgage transactions” removes a key element from the loan approval process: “the personal contact that takes place if a third-party appraiser conducts an on-site valuation.”
“The bank’s computer will confirm a value which may support a higher value than the property’s actual worth if inaccurate data, and possibly “embellished listings by a friendly real estate agent” have been used. Roman points out that computer programs are cheaper, at $50 to $75 per valuation, than human appraisal costs that can run up to $250.
Joe Barbera, a communications consultant with extensive banking industry experience, said in an interview that, “in the past, decisions on mortgages were paper-driven by local bankers and mortgage specialists in their neighbourhoods.”
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