Mortgage 101 – Unveiling Mortgage Fraud with Sandi Burns

Clinton and Todd are joined by Sandi Burns, AVP Residential and Retail Credit Risk, to talk about Mortgage fraud. Fraud is on the rise. And not just by the those looking for illegal gains. Sandi talks about the complexity of fraud for shelter, fraud for profit and the risks of fraud that affect more than lenders and borrowers. Clinton and Todd highlight some tips for detection and prevention, and encourage borrowers to always ask the important questions to an unbiased mortgage professional.

Mortgage fraud and its impact on lenders and borrowers

Todd Veinotte
All right, welcome back to Mortgage 101 your guide to homeownership with myself, Todd Veinotte and Clinton Wilkins, we indeed have a guest with us today!

Clinton Wilkins
We do, how many hours of radio on mortgage lending do you think you’ve done Todd, like over the last six years?

Todd Veinotte
Hundreds and hundreds and hundreds, potentially 1000s.

Clinton Wilkins
And we’ve never really talked about fraud even though it happens. You know, we talked a little bit about title fraud last season, not a lot.

Todd Veinotte
Because we’re trusting people, I think apparently

Clinton Wilkins
I think in Atlantic Canada, we are very, very trusting. But I mean, I think it does happen. A couple times a year, we get borrowers that might present us with questionable documents, and I think there’s always these files that, you know, might not smell 100%, right, you know, we do some additional due diligence, or, you know, talk to a lender to be like, “Hey, I think we need to, like really dig deep into this.” But it impacts everyone. Not only does it impact, you know, the lenders, it might impact the originator. But it impacts the borrower. And I think sometimes, you know, we just want to, be approved, because we want to have shelter. But I think there’s people that do these fraud, sometimes for profit, and it does happen. And there’s a variety of different reasons that it might happen. And I think sometimes frauds are unintentional, or people don’t know. And we have a guest on which I’m very excited about you know, this season, you know, we really strive to bring on more professionals from all kinds of different walks of life. You know, our last show, we brought on an engineer, construction monk, contractor, and you know, had a really great chat with him. And this month, we have brought on Sandi Burns. So we’re gonna pass the mic to Sandi, so she can do a little intro.

Todd Veinotte
Yea Sandi introduce yourself. What are you all about?

Sandi Burns
What am I all about? So…

Todd Veinotte
I mean, I don’t mean from like a philosophical sense, I meant your credentials. Although we could talk philosophical.

Clinton Wilkins
I am sure we probably could.

Sandi Burns
Absolutely. Maybe that’ll be another segment. Yeah, absolutely. So my title sounds, I think not very exciting. I’m an executive.

Todd Veinotte
Well if your title is not exciting, then we can’t have you on the show!

Sandi Burns
Sorry, I’m just gonna go then. Haha, I’m in credit risk, specifically residential and retail credit risk. So I work a lot with residential mortgages. That’s one of the key things that we work with. And so I kind of see the back end of what happens when folks are put into mortgages that they really can’t afford.

Todd Veinotte
You mean after the fact? How does that happen?

Sandi Burns
Sometimes I think Clinton really touched on a lot of those elements. So sometimes it’s, “I really want this house, but I kind of can’t afford it.” So I’m gonna, I’m gonna fudge that letter of employment or fudge that pay stub just so I can get in.

Clinton Wilkins
Or you may be really good friends with your employer or something like I think, that there’s sometimes all layers of fraud.

Sandi Burns
That’s it!

Todd Veinotte
Seems to me that that would be illegal, would it not, to be submitting those types of documents?

Sandi Burns
Yeah, but I don’t think a lot of folks really don’t think about, you know, doctoring a letter of employment or a downpayment statement and investment statement, altering those numbers a little bit so they can get into their house; they don’t see that as illegal, they don’t see it as fraud. They think I just really want this house and I want to qualify for it. So it’s really important, I think, for folks like like Clinton and his team to educate consumers, because you know what it is fraud, it is illegal. But at the back end of it, if you’re in a house that you really can’t afford, you could end up in a position where the banks foreclosing and we’re going to unfortunately, we have to put that property up for sale and you’re not going to get the benefits of that sale, and it hurts your credit. It could potentially leave you without a home so there’s a lot of downstream impacts there that we really don’t think about.

Todd Veinotte
How common is this?

Sandi Burns
I think it’s a lot more common than probably what we see.

Clinton Wilkins
And probably more than likely, we even know. Like I mean I do this every day and very few times a year we see even like questionable documents, but I’m sure, you know on the lender side, like Sandi you work for a medium sized bank. I’m sure you guys see it a lot more than maybe an originator sees it. Plus your you guys have trained like a whole team of people that are looking at these documents every day.

Sandi Burns
We do indeed, yeah, there’s a lot of red flags that we look for at the end of the day. The biggest thing is common sense. You mentioned the sniff test? We call it spidey sense; are your spidey senses tingling? Does this actually make sense? Does this person who is self employed, who’s making $200,000 a year really make that much when there’s no online presence? When there is no LinkedIn profile? When there’s no social media that references their business or anything else? Like, in today’s world, in particular, we have the ability to do a bit of a deeper dive on borrowers before we even bring them on as customers, just to make sure that this is legitimate, right?

Todd Veinotte
As you’re talking here, I mean, these are human resource, intense things, what you’re doing right? In order to go through these files and flag these files, I would think that, banks and lenders will only dedicate certain amount of resources do this.

Sandi Burns
Absolutely, and what we’re faced with these days in particular, especially with fintechs on the rise, is people want answers immediately. They don’t want to wait. And it’s very competitive. But on the flip side, we also don’t want to be putting fraud on the books. And so it’s this, I think its a tight rope act, to absolutely.

Mortgage fraud trends and prevention strategies

Clinton Wilkins
Yeah, because, you know, just think about one lender, and clients, you know, I understand sometimes, you know, they feel like we need a blood sample sometimes to get clients approved. Whether it’s income verification, or whether we’re verifying their down payment. But, as much as we’re trying to protect the bank, we’re really trying to protect the borrower from themselves. And I mean, you touched on it, you know, in terms of trends of like what you’re seeing, would you say the majority of the frauds that your bank is seeing, is it fraud for shelter? Or is it more fraud for profit? Like, what’s the difference between those frauds? And like, you know, really, at the end of the day, like, what are you guys seeing in terms of, trends?

Sandi Burns
Yeah, so it’s a great question. We are seeing an increase in fraud for shelter. So that’s, I’m looking for a house and maybe I don’t have sufficient downpayment. Or, I don’t have sufficient income to qualify. We really started to see an increase in fraud for shelter, I would say in early pandemic days. And again, I hate referring back to the pandemic, but things really did shift astronomically for a lot of folks at that point, where employment was put on hold with a potential future return to work date. And so we started relying heavily on letters of employment. Well, a letter of employment is a Word document that’s pretty easy to doctor. And so we started to see fraud for shelter increase at that point. And then of course, we went through the Great Migration through 2021 and 2022, where everyone wanted to go buy bigger houses.

Clinton Wilkins
And every third borrower we saw was from Ontario. For your bank, we’re moving to Halifax. We’re working from home forever.

Sandi Burns
Exactly. And and folks just weren’t able to qualify. So again, doctoring a bit of the downpayment, they were getting into bidding more, so all of a sudden, they had to put more down than they anticipated. And now it’s the interest rates. So fraud for shelter has skyrocketed over the last few years, I think year over year, it was up about 50% which is insane. And then there’s fraud for profit. And that’s a group of people that get together that are going to try and make money.

Clinton Wilkins
That’s a real criminal. These are the ones that you’re sending to jail.

Sandi Burns
Yeah exactly. Not me personally. So and these are the folks that, that they have a group of people in the industry that are working together, and they really are trying to make money off of people who maybe don’t even know. So they’re a part of identity fraud, where they’re, they’re stealing identity. They are a part of title fraud that we saw quite prevalent in Ontario. Or they’re just saying to folks, “hey, we can get you into a mortgage that you can’t qualify anywhere else.” People aren’t asking questions, they’re just going for it.

Mortgage industry ethics and due diligence

Clinton Wilkins
You know recently, even though I’ve been involved in a lot of associations and Facebook groups in terms of the mortgage industry, there was a billboard in Ontario to say, you know, everyone’s approved no doc’s required. And you know, I always ask myself, I’m like, if they’re not doing the due diligence, and even if it is a private lender or high risk lender, you know, what saying that you can actually afford those funds that you’re borrowing? I think that just for me, as an Originator just ask. You know, I have so many questions that come up. It’s scary. A home is so important, especially in this situation, you know, where we’re at in Halifax, if something happens and you have to lose your home or sell your home, you may not have another place to go. And you know, I think that’s why it’s so important ask these questions. And sometimes we get the pushback from borrowers like Sandi as I’m sure you can imagine, borrowers don’t like to give us an always full picture. But it’s really just so important for both sides.

Todd Veinotte
There’s so much more to unpack in all this so we will get you for another segment?

Sandi Burns
Absolutely!

Todd Veinotte
Okay so let’s do that, Mortgage 101 your guide to homeownership, with Clinton Wilkins and myself and our guest. We will be right back!