Tag Archives: credit checks
Borrowers’ personal data at risk of misuse, privacy chief says
By Tara Perkins – Globe and Mail
The federal privacy commissioner is auditing a number of mortgage brokerages because of concerns about the security of borrowers’ personal financial information, The Globe and Mail has learned.
The audit, which industry sources say began this month, is looking into the potential misuse of consumers’ information to carry out fraud such as identity theft. It’s an issue that carries added significance in the wake of the U.S. subprime mortgage crisis, because mortgage brokers and lenders are now being pushed to request even more information and documentation from borrowers.
“The reason that we are doing this is we have been concerned that personal financial information of Canadians might have been falling into the wrong hands,” said Anne-Marie Hayden, a spokeswoman for the privacy commissioner’s office. “There have been numerous breaches reported to our office over the course of the last year or so.”
Ms. Hayden stressed that the audit is still in the preliminary stages, and it is too early to say what practices within the industry it might uncover.
While slightly more than half of all mortgages in Canada are sold by staff of the big banks, the broker channel, made up of about 16,000 brokers, is responsible for about 30% of mortgage activity, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP).
In the year up to March, total mortgaging activity in the country (including renewals) was about $235-billion.
Borrowers turn over a large amount of information about themselves in order to make what, in nearly all cases, is the biggest purchase of their lives.
Independent mortgage professionals are subject to provincial laws, and the standards governing the industry vary across the country. British Columbia and Alberta, for instance, each require mortgage brokers to have a certain level of training. Ontario tightened its standards for education and licensing with legislation that took effect last year. Manitoba Finance Minister Greg Selinger introduced legislation in April that requires mortgage brokers to be licensed.
Jim Murphy, president and chief executive officer of CAAMP, said most brokerage firms have policies and procedures in place to deal with the safeguarding of borrowers’ data and fraud avoidance. The privacy laws are so strict that there have been instances where brokers have had trouble sharing information with police, he said.
But many in the industry say that government and regulators need to do more to ensure that brokers are above board.
“There is tremendous fraud going on in the broker industry,” said Alex Haditaghi, chief executive of Mortgagebrokers.com, a Toronto-area mortgage broker. The privacy commissioner’s probe is “much needed,” he added.
The Financial Services Commission of Ontario, which is responsible for the oversight of mortgage brokers in that province, recently issued a warning to the industry that it has “received a number of complaints from mortgage brokerages regarding fraudulent activities by their mortgage agents, who were fraudulently accessing clients’ credit information without proper authorization.
“The mortgage brokering industry’s reliance on personal information to complete mortgage transactions makes it a target for individuals who wish to gain access to personal information for the purpose of engaging in criminal activities.” Brokers are required to obtain the borrower’s consent to check their credit history.
An official at one mortgage brokerage said in an interview that a broker signed up with their firm and proceeded to carry out hundreds of credit checks in the span of 24 hours.
The privacy commissioner’s office has received 15 notifications of a privacy breach and in each case the mortgage brokerage came forward voluntarily, Ms. Hayden said. Each of the notifications came from the Greater Toronto Area, and so the commissioner’s office has chosen a sample of a handful of franchises in that area for its audit. Ms. Hayden declined to identify those brokerages.
The law currently does not require brokerages to come forward or volunteer the fact that a breach has occurred, and so the privacy commissioner’s office is struggling to obtain the full picture.
Since Ontario’s new laws governing mortgage brokers took effect last July, the Financial Services Commission of Ontario has conducted at least 68 investigations into the suitability of individuals who have applied for mortgage broker or agent licences, and at least two investigations involving unlicensed mortgage brokerage activities. It has sought to deny an application for a licence, or to revoke a licence, more than 25 times.
The U.S. subprime mortgage crisis shone a spotlight on mortgage brokers in that country. They have come under fire for, in many instances, not requiring enough information (such as proof of income) from borrowers, and for pushing them to take on homes that they could not afford. That’s something that Mr. Selinger referred to when he introduced the new legislation in Manitoba this spring.
Peter Wakefield, vice-president of compliance at Mortgage Intelligence, which has offices in multiple provinces, said he has caught an individual applying to the brokerage with false credentials, and reported the incident to York regional police. “I actually caught him with a forged educational certificate,” he said.
Despite that incident, Mr. Wakefield said he believes there are enough rules governing the industry. “I think there are sufficient rules in place, but what may not be in place in all cases is common sense.”
The privacy commissioner’s audit is being conducted under the Personal Information Protection and Electronic Documents Act, which governs how the private sector must protect consumers’ data.
“An audit is a pro-active activity, and it allows us to go into an organization and get a sense of their personal information practices,” Ms. Hayden said. “We need to have reasonable grounds in order to conduct an audit.”
She said the commissioner’s office hopes to progress quickly enough that it can discuss the issue in a 2009 annual report to Parliament.
‘Oh Canada, Get a load of this boom!” What a great headline, especially since I found it on the front page of the real estate section of the Chicago Tribune (Aug. 5, 2007).
Americans are quite envious of our real estate market as they suffer through the subprime mortgage meltdown. I’m often asked if the same thing could happen here and I’m happy to say the answer is `no,’ at least according to Peter Vukanovich, president of Genworth Financial Canada, which, next to CMHC is the largest mortgage insurer in Canada.
Vukanovich says there are many important differences in lending practices and regulatory systems in the two countries. The Genworth head explains that subprime mortgages typically have higher interest rates and fees than “prime” mortgages and often include features such as “teaser” rates that offer the homebuyer very low payments for a short time, or the option to make interest-only payments. As well, whereas Canadian lenders are very strict about debt ratios, income verification and credit checks, the American lenders are not nearly as diligent.
Vukanovich notes that here in Canada, most loans are made for five-year terms with fixed monthly payments that will not jump quickly to unaffordable levels. Also, mortgage interest is not tax deductible here, so we have an incentive to pay off our mortgages as quickly as possible.
Another important difference in Canada is that mortgage default insurance is required under federal financial services law for those making less than a 20% down payment. As a result, 95% of the loans made in Canada are considered “prime” lending quality versus a much smaller number in the United States.
By acting as a lender’s “second set of eyes,” mortgage insurers see that underwriting standards are consistently applied to about half the market â€“ approximately 450,000 mortgages in 2006.
Mortgage default insurance works by transferring the homeowner’s risk of default from the lender to the mortgage insurer. It also benefits Canadian homebuyers by allowing them to obtain loans at lower interest rates than would otherwise be charged if lenders retained the risk of default.
“If Canada had a U.S.-style system, at least one-third of all Canadians who currently have low-cost insured prime mortgages would pay higher interest rates and additional fees,” Vukanovich says.
“All told, Canadians can take comfort in knowing that our mortgage default insurance system is one of the most efficient, safest and stable in the world. “
The whole U.S. house of (credit) cards assumed rising real estate markets and stable or declining interest rates. Unfortunately, the U.S. has seen the opposite trends.
We’re very fortunate to be avoiding that fiasco here in Canada, although we are certainly feeling the side effects on the stock market side. For years, there were just two mortgage insurance companies in Canada, but we are starting to see some new players. I think competition is great, but we must ensure that responsible lending standards prevail.
The bottom line is that our lending practices are solid and our real estate market remains strong and insulated from the woes of our neighbours to the south.
Bob Finnigan is president of the Building Industry and Land Development Association. The views expressed are those of the president. firstname.lastname@example.org