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Fraud Alert #2: How Title Fraud Works – and How to Protect Against It

In the second of a two-part series on fraud, we explain real estate title fraud and how to protect your home. As seen in REW.ca

Last time, we discussed mortgage fraud and “straw buyer” schemes and the red flags that come up when they happen. This time we are taking a look at an even more insidious type of fraud, where the red flags are hard or even impossible to spot until it’s too late.

identity theft 2Title Fraud

When you purchase a home, you purchase the title to the property. Your solicitor registers you as the owner of the property in the provincial land title office.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

This occurs when your personal information is collected and used by someone identifying themselves as you. There are several ways criminals can steal your identity without your knowledge, which includes:

  • dumpster diving;
  • mail box theft;
  • phishing; and
  • computer hacking.

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud.

Here’s what happens with title fraud. A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

The following are widentity-theftays you can protect yourself from identity theft:

  • Ensure you keep personal information confidential when on the internet or phone until you know who are dealing with, how it will be used and if it will be shared with anyone.
  • Only carry minimal information and identification in your wallet, don’t have your social insurance card with you.
  • Check your credit report regularly. You can get them free when you request them from the Equifax and Transunion when they mail them to your home. If you notice anything suspicious, contact the credit bureau right away.
  • Check your financial, bank and credit card statements regularly for any inconsistencies and unknown charges.
  • Consider obtaining a title insurance policy, as title insurance protects against many title risks associated with real estate transactions.
  • Check your mailbox for mail on regularly, if not every day.
  • Shred and destroy any financial and personal identification documents, as well as any unsolicited credit card applications rather than just simply throwing them away.
  • If you don’t receive your bills or other mail, follow up with your creditors.
  • If you receive credit cards that you didn’t apply for or if you did apply for them and didn’t receive them.
  • Contact your mortgage lender first if you are having difficulty making your mortgage payments.

ACE_Identity-Theft-Prevention2014_webThe following are ways to protect yourself from title fraud when purchasing or refinancing a home:

  • Make sure you work with a licensed real estate agent who is familiar with the area you are interested in buying. Select to work with someone that can provide trusted referrals and check on them.
  • Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable.
  • Always view the property you are purchasing in person – don’t buy without seeing it first.
  • Beware of a real estate agent or mortgage broker who has a financial interest in the transaction.
  • Ask for a copy of the land title or go to a registry office and request a historical title search.
  • In the offer to purchase, include the option to have the property inspected and appraised.
  • When giving a deposit when purchasing a property ensure the funds will be held “in trust” with a solicitor or a real estate agency and not directly with the seller.
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab.
  • Ask to see receipts and permits for recent renovations.
  • Consider the purchase of title insurance.
  • Review and make sure you are comfortable with the terms and conditions with the mortgage commitment letter or approval.
  • Review the “cost of borrowing disclosure statement” and be aware of any additional fees or charges. Ask questions if you are not sure.
  • Know and understand what you are signing. If you have questions, ask. If you are not comfortable or something is not right, do not sign the documents.
  • You might want to consider using your own solicitor for legal advice if you are asked to use the same lawyer as the seller.
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Fraud Alert #1: What Happens with Mortgage Fraud – and Why You’re Not Safe

In the first of a two-part series on fraud, outline the red flags for mortgage fraud. As seen in REW.ca

Nowadays, with the amount of information that is shared on the internet and social media, identity theft and Ponzi schemes are happening regularly. Homeowners are taking the necessary steps to protect one of their largest investments, which is their home.

The last thing you want to worry about is yet another way to lose your hard-earned money. But as a homeowner, you need to be aware of crimes on the rise, known as mortgage fraud and real estate title fraud.

In this first part, we will look at mortgage fraud and “straw buyer” schemes.

trap,  catch

Mortgage Fraud

Some borrowers may think that providing false documents and making false statements is not a big deal. However, the Criminal Code clearly states that obtaining funds, including mortgages, by providing false information is a crime.

The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Here are some red flags for mortgage fraud:

  • Someone offers you money to use your name and credit information to obtain a mortgage.
  • You are encouraged to include false information on a mortgage application.
  • You are asked to leave signature lines or other important areas of your mortgage application blank.
  • The seller or investment advisor discourages you from seeing or inspecting the investment property you are purchasing.
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution.

“Straw Buyer” Schemes

Another kind of mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so they cannot purchase a home. They, or an associate, approach someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for a home purchase.

Other types of criminal activity often dovetail with mortgage fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes.


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How this Summer’s New Mortgage Rules Will Affect You

Three significant changes to the CMHC’s mortgage rules will affect qualifying interest rates, down payments and income verification. As seen in REW.ca

The mortgage industry has seen many changes on lending guidelines in the past five years that has made it tougher for prospective homebuyers to qualify. This summer, there are new mortgage rules heading our way.

The changes are intended to continue with the industry’s recent focus on risk management, as per the Office of the Superintendent of Financial Institutions (OSFI) B-21 guidelines. OSFI is an independent agency of the Government of Canada that has a mandate to contribute to the safety and soundness of the Canadian financial system. It is responsible for supervising and regulating federally registered banks, insurers, trusts and mortgage companies, in addition to private pension plans subject to federal oversight.

Now the CMHC (Canadian Mortgage and Housing Corporation) is implementing three policy changes in accordance to OSFI’s B-21 guidelines. These changes will make it harder to get low-ratio insured variable-rate mortgages, mortgages for the self-employed and 100 per cent financing.

The changes are as follows:

  • Qualifying interest rate: The qualifying intcubeerest rate for all mortgages with variable and fixed terms of less than five years will increase from June 30. It will then be either the five-year Benchmark Qualifying Rate from the Bank of Canada (currently at 4.64 per cent) or the contractual mortgage interest rate, whichever is the greater. For fixed-rate mortgages, where the term is five years or more, the qualifying interest rate is the contract interest rate.

CMHC is allowing some flexibility to implement this change, which is to be implemented as early as possible after June 30 and no later than December 31, 2015.

What does this mean for you? Even if you are getting a lower interest rate on a term less than five years, in order to get approved for that rate you still have to qualify at the Benchmark Qualifying Rate (that is, you would be able pay the mortgage if it was at the qualifying rate). Previously, conventional mortgages could qualify at the lender discounted rate.

  • photo_incentives_190Cash back for down payments:  In order to encourage borrowers to save for homeownership, lenders’ cash back programs (where the lender will give the borrower up to 5 per cent of the value of the property in cash after the mortgage has been funded) will no longer be considered an eligible source of down payment unless borrowers can come up with a 5 per cent down payment on their own. This change will become into effect on June 30.
    This means that borrowers will need to get their down payment from traditional sources, such as savings, RRSPs (tax-exempt for first-time home buyers), gifts from immediate family, proceeds from the sale of another property, and so on.
  • Verification of income: Lenders will now be required to obtain “thiincomerd party verification” of income from all borrowers. This means lenders will be more stringent on income and employment verification. All lenders will have to call the employer for verification of tenure, position and income. Many lenders have already started asking for this information for quite some time. Some lenders are asking for bank statements for the past three months showing the deposit of your pay cheque into your bank account if the payroll is not prepared and paid by a third-party company such as ADP or Ceridian. This change will be effective on June 30.

CMHC stopped insuring “stated income” financing for self-employed individuals. Genworth and Canada Guaranty are still offering this program. At this point, we don’t know if there will be any changes.

This means that borrowers are going to have to provide quite a bit more documentation in order to verify income.

Why are All These Changes Happening?

The reason why there hchange-on-the-horizonave been so many mortgage rule changes, and more are on the way, is to ensure that all lenders follow policy and guidelines to include income verification and ratio qualification set up by OSFI. Previously, some lenders have been issuing mortgages without properly obtaining the proof of income. Insurers will be required to do their own due diligence and not only rely on what the lenders are telling them.

In addition, with historic low interest rates, the Government of Canada wants to minimize the risk once interest rates start going up and prevent what happened in the US with mortgage crisis.

While these changes are under way, many lenders have already made these changes on their lending guidelines and policies since last year in order to minimize their exposure and reduce risk. While Genworth and Canada Guaranty haven’t announced changes on the third-party verification, because many lenders have, this will be the new norm in the industry.

The good news is that there are still some lenders out there that haven’t adjusted their policies and will not do so until required to do so on June 30. For this and many other reasons, it is beneficial to use a mortgage expert who works with multiple lenders to find the best mortgage for your unique situation. We would be pleased to assist you, we can be reached at 778.893.0525.


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Frequently asked questions when buying a home

As seen in the Metro Vancouver New Home Guide.

What do lenders look at when qualifying me for a mortgage?

Most lenders look at the following factors when determining whether you qualify for a mortgage:

  • Income
  • Debts
  • Employment History
  • Credit history
  • Value and marketability of the property you wish to purchase.

How much can I qualify for when buying a home?

Conceptual image - percent growth

Conceptual image – percent growth

In order to determine the amount for which you will qualify, there are two calculations that are used. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees, if applicable). Generally speaking, this amount should not be more than 35% – 39% of your gross monthly income. For example, if your gross monthly income is $4,400, you should not be spending more than $1,716 in monthly housing expenses. Second, your Total Debt Service (TDS) ratio is calculated. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 42% – 44% of your gross monthly income. The GDS and TDS will depend on your credit. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to get pre-qualified by a Mortgage Expert. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price of the home when you are an employee. When you are self-employed it will depend if you are qualifying based on what you are declaring on your income tax then it will be 5% and at least 10% down payment when you are self-employed and qualifying with an “estimated” gross income instead of the incoming showing on your income tax return. In order to avoid paying mortgage default insurance, you need to have at least a 20% down payment

If I86809937 don’t have the full down payment amount, what can I do?

There are programs available that enable you to use other forms of down payment, such as from your RRSPs, or a gift from a parent, child or siblings. Also, you can borrow the down payment from a line of credit, loan or credit cards. However, in order to qualify you still have to be within the TDS ratios as mentioned above.

What else do I have to pay to purchase a home?

You will have to pay for the closing costs. The lenders require you to have in your bank account at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. You must have this amount but it doesn’t mean you are going to spend it. The following are some of the closing costs:

  • Legal costs
  • Property tax adjustments
  • Strata/ condo fee adjustments (if applicable)
  • Cost to register property in land title office, etc.

What would be my mortgage payments?

Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you are paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments.

What is better a fixed or variable rate mortgage?Discount

The answer to this question depends on your personal risk tolerance. For instance, you are a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. If your financial situation can handle the fluctuations of a variable rate mortgage, this may save you some money over the long run.

What is the best interest rate that I can get?

Your credit score plays a big part in the interest rate for which you will qualify,as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as pre-payments and portability privileges when opting for the lowest-rate product. Remember not to focus on the lowest interest rate but on finding the best mortgage with the most favorable terms and rate. While you might end up having a lower rate, it can end up costing you thousands of dollars of unnecessary costs in the long run.

What credit score do I need to qualify?

Generally speaking, you are a prime candidate for a mortgage if your credit score is 680 and above. The higher you score the better, as you will have more options and advantages. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores their options will be more limited and interest rates could be higher. But don’t worry consult a Mortgage Expert to see how they can help you in obtaining a mortgage.

What happens if my credit score isn’t great?

There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost:

  1. Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they are below 50% of your limits.
  2. Limit the use of credit cards. Racking up a large amount and then paying it off in monthly installments can hurt your credit score. If there is a balance at the end of the month, this affects your score.
  3. Check credit limits. If your creditor is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your application.
  4. Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. Use these cards periodically and then pay them off.
  5. Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

To get more details about these and other questions you might have, give us a call and we will be able to analyze your personal situation and provide you with more information so you can make an informed decision on buying your home.


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What Happens When Financing Falls Through?

If your mortgage approval is rescinded at the last minute, your purchase could be in jeopardy. Here’s how to fix it. As seen in REW.ca

Q: I’m buying an old house, and the offer subject to financing. But what happens if the bank doesn’t approve the house and my financing falls through at the last minute?

A: If your financing falls through at the last minute, we would advise to get an extension on your subject removal date and not remove subjects until your financing is in place.

When you put an offer to purchase a home, you are saying that you will be buying the home provided all the conditions are fulfilled prior to you giving a deposit. Those conditions are commonly refer to as “subject,” such as subject to inspection, review of the strata minutes, financing, etc. During this time you will do your due diligence along with your real estate agent and mortgage expert via the lender. Prior to putting an offer, you would have been pre-approved or pre-qualified. While the lender might have approved you, they have still not approved the property you are purchasing.

Once you have an accepted offer the lender will issue a commitment letter agreeing to approve your mortgage provided you can fulfill the financing conditions. Some of these conditions include income confirmation, source of down payment, appraisal (if required), and approval of property such as property disclosure statement, strata minutes, Form B, etc. It is critical that the lender reviews and approves all of these documents before removing subjects. There has been cases where the lender has no issues with the borrowers but has issues with the property and therefore will not approve the financing.

When you work with a bank you only have one option, but when you work with a mortgage expert because we have access to multiple lenders if one lender doesn’t approve the mortgage, then we are able to go to another lender. This will save time and stress to the client. We have seen many situation in which the lender is not comfortable with the property so, in order to get financing with other lenders, an extension of one or two days is required to ensure all financing conditions are fulfilled and the client feels comfortable in removing subjects.


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Is the Rate the Most Important Factor in a Mortgage?

With ultra-low interest rates all over the news, it’s no wonder that’s what people focus on. But they shouldn’t. As seen in the REW.ca.

It is interesting that, time after time, when you ask someone “What is the most important thing about a mortgage?” they respond by saying “the rate”. This was exactly the answer we got at a networking event last week when we asked that question.

DiscountThe reason why people focus on “the rate” is because that is the only thing you hear on the news. Last week, it was all over the news that both BMO and TD announced that they have dropped their five-year rate. Then the talk around the watercooler is “What is the rate on your mortgage?” or “I just got 2.74 per cent for five years”. There are other lenders that mortgage experts work with that have being offering lower rates than that for weeks.

But it’s not about “the rate” – or it shouldn’t be. While the rate is an important component of a mortgage, it is not the main thing you should focus on. You should be focusing on what is the best mortgage for your individual needs that provides a great rate but most importantly the best terms and conditions.

By understanding mortgage terms and what they mean in dollars and cents, you can save the most money and choose the term that is best suited to your specific needs.

So What Should You Consider When Looking for a Mortgage?

  • Pre-payment penalties.

All closed mortgages have the pre-payment clause that says that is you pay off your mortgage before the end of the term, you would have to pay a penalty calculated based on the greater of the IRD (interest rate differential) or the three-month interest penalty. However, there are some lenders that they are offering lower rates and in addition to the above penalties they are also including a 2.5 per cent to 3 per cent penalty (depending on the lender), which ever one is greater. In addition, since there is no magic formula to determine the penalty, each bank has its own calculation formula. Most banks determine the rate you pay based on the posted rate minus the discount you receive. However, at the time to calculate the pre-payment penalty they use the posted rate.

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  • Pre-payment options.

The pre-payments without penalty clause is one of the conditions that can save you thousands of dollars over the life of your mortgage. This clause allows you to make payments on the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. Each lender has different programs for pre-payments, they usually vary from 10 per cent to 20 per cent. For example, you can pay any amount within the approved percentage of the original value of your mortgage, or increase your periodic payments once a year, without paying a penalty. Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional lump sum payments, but they can certainly increase their payments up to 20 per cent. By doing this it will help you reduce your amortization period and pay more money toward principal than interest.

  • How your mortgage is registered – collateral or conventional mortgage.

o   With a conventional mortgage, the amount you are borrowing (property value minus down payment) is the amount that’s registered. But with a collateral mortgage, the amount that’s registered is 100-125 per cent of the property value, and the lender has both a promissory note and a lien registered against the property for the total registered amount. The advantage of a collateral mortgage is easy access to credit. Since the mortgage is already registered for a larger amount than you need to buy the house, you can access additional funds in the future without any extra steps or legal fees. However, there are also several downsides of collateral mortgages especially if you are putting less than 20 per cent down payment. The reason being is that with the current mortgage rules you are not able to refinance your mortgage unless you have more than 20 per cent of equity in your home. Therefore, unless your home dramatically increases in value in the next five years you will not be refinancing anytime soon.

o   Free transfers or switches to a new lender when your term is up aren’t usually available. Most other lenders don’t like the fine print and restrictions of collateral mortgages and won’t accept them unless they’re a refinance, which costs you legal, discharge fees and possible appraisal fees.

o    You could end up paying a higher interest rate at renewal. If your collateral mortgage makes it difficult to switch lenders at renewal, you don’t have the ability to shop around for the best rate. That could end up costing you up to 1 per cent more on your mortgage rate.

QAsignpost-wide386Therefore, before you sign on the dotted line, make sure that it is clearly explain to you what are the terms and conditions of the mortgage you are getting. If you are not comfortable with the answers you are getting or if they are not taking the time to explain the details of the mortgage take a step back.

That is why it is important that you work with someone that you trust, feel comfortable with and know that they are looking out for your best interest. Mortgage experts have access to multiple lenders – including banks, credit unions and other lenders that only work with brokers – which will ensure that we find the best mortgage for your individual needs. After all, we work for you and not for the banks.


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Mortgage insurance rates are raising

If you are planning to buy a property with less than 10% down payment expect to pay a bit more. As seen in Metro Vancouver New Home Guide.

CMHC and Genworth have announced that starting June 1st, all homebuyers that are putting less than ten per cent will be paying a higher mortgage default insurance. This is commonly referred to as simple “mortgage insurance”.

The mortgage default insurance increases the opportunities for homeownership with a low down payment as saving for a 20 per cent down payment can be difficult in today’s housing market. There are two types of mortgage options; conventional mortgages which are loans with a minimum 20 per cent down payment and high ratio mortgages are loans with less than 20 per cent down payment.

bankAs per the Bank Act, mortgage insurance is required on all high-ratio mortgages. The insurance protects the mortgage lender only against a loss caused by non-payment of the mortgage by the borrower and it is not a protection for the homeowner. However, mortgage insurance enables borrowers to purchase a home with a minimum down payment of five per cent.

Mortgage default insurance is provided by insurers such as Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada and Canada Guaranty. Each mortgage insurer has its own criteria for evaluating the borrower and the property and it decides whether or not a mortgage can be insured. The lender and not the borrower selects the mortgage insurer. It is possible that the mortgage application can be approved by the lender but might not be approved by the insurer.

The mortgage default insurance premium is a one-time charge and it is paid by the borrower to the lender. The premium can be paid in a single lump sum at the time of closing or it can be added to the mortgage amount and repaid over the amortization period (or the life of the mortgage). The cost of default insurance is calculated by multiplying the amount of the funds that are being borrowed by the default insurance premium, which typically varies between 0.5 per cent and 6.0 per cent. Premiums vary depending on the amortization period of the mortgage, the loan to value ratio, the size of the down payment and the product.

In May 2014, CMHC increased the mortgage default premium for all high-ratio mortgages regardless of the loan to value. However, this new increase will be the second increase for buyers that are putting less than 10 per cent down payment which is more than 56 per cent of CMHC insured borrowers. History has shown that once CMHC increased their premium, Genworth and Canada Guaranty follow suit.

The new rate for a loan to value up to 95 per cent will increase to 3.60 per cent from the current 3.15 per cent. This will mean an approximate increase of $450 of mortgage default insurance for every $100,000 of a mortgage. In addition, a non-traditional down payment (where you borrow the down payment with a loan, unsecured line of credit or a cash back program), the premium will increase to 3.85 per cent from 3.35 per cent. This increase will not impact any homeowners that are currently insured. This increase will have an impact for anyone that is buying a property.

What does this mean in dollar and cents?CMHC increase in premium

What does this mean to me?

  • If you are putting less than 10% down payment and your lender has submitted your application to the insurer before June 1st you will be paying the current premium rate. It doesn’t matter if your completion date (when your mortgage closes) is after June 1st.
  • If you have been pre-approved or pre-qualified and you don’t have an accepted offer and approved by the insurer you will have to pay the new premium.

If you are pre-approved, pre-qualified or are looking at purchasing a property, talk to a Mortgage Expert so they can explore your options based on your individual needs.