CMHC beefing up mortgage fraud detection

TORONTO — Canada Mortgage and Housing Corp. is beefing up its ability to detect patterns that may indicate mortgage fraud after being directed to do so by the federal government, the agency’s president and CEO said Thursday.

“There is no evidence that fraud is a widespread problem,” Evan Siddall said following his remarks to the Canadian Club of Toronto.

“But we know it happens, it’s very hard to find, and incentives exist for fraud in the system, so we need to be vigilant.”

Mortgage fraud has been a hot topic following recent events at alternative lender Home Capital, which has been dealing with the aftermath of a scandal involving falsified loan applications.

In 2015, Home Capital severed ties with 45 brokers over fraud allegations. Two of those brokers have been sanctioned by the Financial Services Commission of Ontario, while the other 43 have not.

More recently, Home Capital faced a liquidity crisis after customers started yanking out their savings following Ontario Securities Commission allegations that the company misled investors in its disclosures surrounding the fraud issue. The company has said the allegations are without merit and has vowed to defend itself.

Siddall said CMHC’s stepped up efforts around fraud detection were not triggered by Home Capital, but by a directive formally issued to the agency by Ottawa.

The housing agency is looking at ways to use data analytics to spot patterns that could be indicative of fraud networks or fraud rings. That would allow it to approach lenders when it spots something suspicious.

“We’re looking for associations among individuals that aren’t apparent from an individual application for mortgage insurance, but are apparent when you look at a large number of applications, and then you can identify networks and patterns,” said Steven Mennill, CMHC’s senior vice-president of insurance.

CMHC has not seen any increase in mortgage loan defaults as a result of the Home Capital matter, Mennill said.

Home Capital also remains a CMHC-approved issuer of mortgage-backed securities, through its subsidiary Home Trust Company, Siddall said.

“We’re monitoring the situation daily, as we do with many lenders,” Siddall said.

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