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Real estate agents caught on hidden camera facilitating mortgage fraud for a fee

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As interest rates rise, qualifying for a mortgage is getting harder for buyers, but that isn’t stopping some real estate agents from making a sale. An undercover investigation by CBC Marketplace has exposed some networks of real estate agents, mortgage brokers and bank employees facilitating mortgage fraud for a fee.

They are recorded on hidden camera offering to connect buyers with fabricated documents showing fake employment, salaries and tax filings, so buyers can obtain loans they would not otherwise qualify for.

  • Have a question or comment about mortgage fraud? Email: ask@cbc.ca or join us live in the comments now.

It’s a lucrative business. Real estate agents say the teams charge one per cent of the mortgage amount for the fabricated mortgage application. This is in addition to other commissions that can be earned once the sale is finalized.

On the sale of a $640,479 home, the average sale price in Canada, a real estate agent would typically make $16,000 to $32,000 in commission, while the mortgage agent could earn upward of $2,550 in commission from a lender.

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  • Watch the full investigation tonight at 8 p.m. (8:30 NT) on CBC-TV or stream anytime on CBC Gem.

While some consumers actively seek out and participate in this fraud, Marketplace has learned that some real estate agents are also taking advantage of unwitting buyers. Newcomers are particularly at risk, as they may not fully understand the home-purchasing process. New Canadians are also less likely to immediately qualify for a mortgage at one of Canada’s big banks, as their employment and credit history in Canada is more likely to be limited.

Experts in law and financial crimes say what Marketplace has uncovered is illegal under Ontario’s Real Estate and Business Brokers Act and the Mortgage Brokerages, Lenders and Administrators Act. Submitting a fraudulent mortgage application is also a violation of Canada’s Criminal Code.

Consequences for buyers and the market

This crime also has repercussions for Canadians as a whole, says Dan Eisner, CEO of True North Mortgage.

“As interest rates rise and house prices drop, these buyers are most likely to default on their payments and that can put further downward pressure on the housing market through panic sales,” he said.

True North Mortgage has detected and stopped multiple fraudulent applications submitted to the company, along with counterfeit tax and employment documentation such as T4s and letters of employment that reference fake company names and phone numbers, where a real person will pick up and a real website exists.

As home prices continue to plummet, these buyers are at greater risk, Eisner says.

“If people obtain mortgages fraudulently and they thought their backup plan was to sell the house if I can’t afford it, that backup plan’s disappearing. It also keeps honest people out of the market as they compete for various homes.”

The Real Estate Council of Ontario (RECO) would not talk to Marketplace on camera about the findings of the investigation.

In a statement, RECO’s registrar Joseph Richer wrote: “Agents should expect to be prosecuted if they engage in mortgage fraud.”

For real estate agents, falsifying mortgage information or assisting in the falsifying of information can result in fines up to $50,000, prison for up to two years, or suspension or revocation of the agent’s licence.

In the past five years, RECO says it has disciplined seven real estate agents or brokers and laid charges under the Provincial Offences Act against several others.

“Real estate agents who break the law and violate the trust of Ontario consumers should be thrown out of the business,” Tim Hudak, president of the Ontario Real Estate Association, said Friday in a press release responding to Marketplace‘s investigation.

“The Real Estate Council of Ontario (RECO) needs additional tools to investigate bad behaviour, levy heavier fines and suspend or remove licences for egregious rule breakers.”

Mortgage fraud is a growing problem, according to Carl Davies, head of fraud and identity at Equifax Canada. The credit bureau flags between 15,000 and 24,000 suspicious mortgage applications each month, for lenders.

“Sixty-seven per cent of the applications that we find, or are tagged by our members as fraudulent, are actually related to that kind of misrepresentation,” he said. “It’s by far and away the biggest indicator of fraud or biggest risk of fraud we see in that space today. ”

Marketplace staff posed as homebuyers with hidden cameras

To understand where mortgage fraud often starts, two Marketplace employees went undercover with hidden cameras, posing as new Canadians looking to purchase their first home.

The pair visited 10 properties for sale by real estate agents or brokerages where previous research indicated fraud may be taking place.

Marketplace‘s undercover buyers told each agent that they had enough money for a 20 per cent down payment, but were unsure about their eligibility for a mortgage since one of them had an undeclared cash income. This factor alone would disqualify them for a mortgage at Canada’s big banks.

The agents all recognized the couple would not qualify for the mortgage needed to purchase the home, but six out of 10 went on to offer to facilitate mortgage fraud by connecting the couple with counterfeit documents and brokers who would submit the application on their behalf.

WATCH | Real estate agents caught pushing mortgage fraud on camera: 

 

Real estate agents caught pushing mortgage fraud on camera

 

Six out of ten real estate agents offered to help would-be buyers fraudulently qualify for a mortgage, according to a CBC Marketplace Investigation. David Common reports for The National.

“Income is not an issue,” said one real estate agent while showing documents he was working on for other clients. “This is what we turn into their income. Even if you are making zero dollars, even if you are a housewife, we can make the income. The only thing we cannot make is credit.”

“You know, by books, you will not qualify,” said another agent, who went on to describe how his contacts could help. “They will do some documentation showing that you guys are making more and they will get you what you want. But they cannot openly say it out in public because that’s not true.”

“They will make a T4, they will make like she is on the payroll, they will use any company’s payroll and put their name onto that, right,” said a third.

Three of the six real estate agents caught offering to facilitate mortgage fraud work for HomeLife Miracle Realty Ltd., which has five brokerages across the Greater Toronto Area and one in Cambridge, Ont. Marketplace has also spoken with several buyers who say agents working for the same brokerage pushed them toward fraudulent mortgage applications or submitted one without their knowledge.

When reached for comment, the agents documented on hidden camera either didn’t respond or told Marketplace they refer clients to legitimate brokers but don’t deal in mortgages themselves.

Ajay Shah, the broker of record for HomeLife Miracle Realty Ltd., said he does not condone the behaviour Marketplace told him it captured on camera, and said the three agents documented represent just a fraction of their sales and the 3,000 agents working under his supervision.

The real estate brokerage HomeLife Miracle Realty Ltd., has five branches across the Greater Toronto Area and Cambridge, Ont. Three of the six real estate agents caught on camera offering to facilitate mortgage fraud work for HomeLife Miracle Realty Ltd. (CBC)

If shown evidence of wrongdoing, Shah said he would act but ultimately opted not to participate in an on-camera interview and did not view the footage.

“Of course, the maximum I can do is fire them because I’m not the authority to take the licences away from these [agents]. That only RECO can do,” Shah said.

Industry needs better oversight, expert says

Forensic accountant Jennifer Fiddian-Green says these findings are an indication the real estate industry needs better oversight.

“We need the regulatory bodies to monitor more and go in and do practice inspections, all of that,” she said. “We need our people on the front lines to be alert and agile so that we can respond.”

Mortgage broker Sanjeet Mand agrees that a lack of enforcement is allowing this crime to flourish in the real estate and mortgage industry.

“I think it’s insidious,” he said. “I think we need to get these people out of this business.”

Sanjeet Mand works as a mortgage broker in Brampton, Ont. He worries about how prevalent mortgage fraud has become and says more enforcement is needed. (CBC)

Mand said he has lost out on referrals when some real estate agents have told him they only work with brokers willing to provide fake documents and fraudulent applications.

“Anytime you talk to someone it’s like, ‘Oh, can you make me documents?’ It shoots our credibility.”

To test how often mortgage agents will provide false documents without a referral from a real estate agent, Marketplace producers also cold-called 25 mortgage brokers or agents in five hot real estate markets across the country including the Greater Vancouver area, Calgary, Edmonton, the Greater Toronto Area and Montreal. The majority of mortgage agents said they would not help with a fraudulent mortgage application, but one in five said they would.

“My team will ask for $3,000 and I charge one per cent of the mortgage amount,” said one mortgage agent, offering to help with the fraud.

In Ontario, the Financial Services Regulatory Authority (FSRA) is responsible for disciplining mortgage agents. It says the brokers in this scenario would be considered in violation of the Mortgage Brokerages, Lenders and Administrators Act, which prohibits agents from facilitating dishonesty, fraud, crime or illegal conduct.

In a statement, the FSRA said: “A mortgage broker or agent shall not act, or do anything or omit to do anything, in circumstances where he or she ought to know that by acting, doing the thing or omitting to do the thing, he or she is being used by a borrower, lender, investor or any other person to facilitate dishonesty, fraud, crime or illegal conduct.”

Mortgage fraud pushed through at Canada’s big banks

Marketplace‘s investigation has also found that fraudulent mortgage applications supported by fake employment and tax documents are being pushed through by individuals working at Canada’s biggest banks.

“You will get the bank rate, you will get everything from the bank,” said one real estate agent in response to a question about where the fraudulent mortgage would come from.

“There are three or four [people] who are my own guys, right? This is not their first time or their third time doing this. They are in with the banks. They find some alternatives for even the underwriters.”

Fiddian-Green says banks need to take the blinders off and be more vigilant in their verification process.

“Let’s look at those documents and do some due diligence to make sure that they’re bona fide.  It doesn’t take too long to look at an occupation, look at the employer, make a phone call, do a Google search and find out that there are problems.”

Eisner of True North Mortgage says his company calls every employer on the applications but many other lenders don’t.

“I guess they look at their portfolio and say, ‘Well OK, maybe some percentage is fraudulent,’ and they’re OK with that.”

‘There’s no one to turn to’

While the consequences of this crime rarely fall on the perpetrators, it can have devastating impacts on would-be homebuyers.

Chris and Bibi Harding, who immigrated from Guyana in 2021, were shocked when they discovered that a Scotiabank employee submitted a fraudulent mortgage application on their behalf.

“All our information had been altered,” said Bibi, recalling the day she went into the branch to provide her social insurance number and learned that fake employment information was connected to her and her husband’s accounts.

Their employment profiles, which the branch teller printed out for them, indicated that Chris works as an operations manager for a hardwood flooring company. The same profile claims Bibi works for a tax company.

Neither are true. Chris runs businesses in his home country from Canada and has not been employed since arriving in the GTA. Bibi had only ever worked at an elementary school.

Chris and Bibi Harding discovered fraudulent employment information submitted with their mortgage application at Scotiabank. They believe a Scotiabank employee was responsible for submitting the fake information. (CBC)

In hindsight, the Hardings believe the Scotiabank home financing adviser they used for their mortgage application submitted false employment information under the direction of their real estate agent.

“She indicated that she was given my contact information by the [real estate agent], and she would be able to get us the loan through Scotia,” said Chris.

The Scotiabank employee requested $5,000 to set up profiles for the mortgage application. The Hardings say they sent the money, believing it to be a legitimate fee.

After discovering the fraud, the Hardings complained to Scotiabank but then received a letter directing them to close their accounts immediately.

“I was thinking at this point, ‘OK, you come to Canada hoping to get a better [life] and everybody is just taking advantage of you.’ There’s no one to turn to that will actually represent you and say, ‘Hey, this is not how things are done here.'”

Scotiabank told Marketplace it takes accusations of fraud seriously and has since returned $5,000 to the Hardings and reinstated their accounts. It also says the employee who handled their mortgage application no longer works at Scotiabank.

The banks need to be a player in the response to mortgage fraud as well, says Fiddian-Green.

“We need to get better at working together to be really specific and get at this kind of activity and shut it down, and share, share this so that people can see what’s happening, and know how to spot it early.”

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An ETF to Consider While Investors Pick Up Distressed China Real Estate

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Investors are giving the China real estate market a second look as the country continues to work through the real estate doldrums brought on by last year’s Evergrande Crisis. As such, this opens up opportunities for exchange traded funds (ETFs) that get exposure to Chinese real estate.

It’s often said in the investment world to follow the “smart money.” That could mean tailing the bets of institutional money managers such as Brookfield Asset Management, which is looking at opportunities in distressed Chinese real estate.

Per a South China Morning Post article, “Brookfield Asset Management is on the lookout to acquire premium commercial property from distressed Chinese developers, aiming to increase its footprint in the world’s second-largest economy where fresh capital is needed to bail out the troubled real estate sector.” Based on the report, the Canadian firm is targeting properties in specific cities with the probability of generating returns in the long run.

“We are seeing opportunities and are pursuing lucrative deals,” said Yang Yiwen, senior vice-president of real estate portfolio management for Brookfield in China. “There will be drawn-out negotiations because of pricing gaps to close.”

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As mentioned, the value stems from last year’s Evergrande Crisis, which saw a number of large real estate developers come close to defaulting on their loans. This prompted them to sell real estate such as commercial buildings at low prices in China’s prime locales, giving real estate investors plenty of opportunities to snatch up property at a bargain.

An ETF to Play the Real Estate Bounce

ETF investors looking to play a rebound in China’s real estate market can obtain exposure using the Global X MSCI China Real Estate ETF (CHIR). CHIR seeks to provide investment results that generally correspond to the price and yield performance, before fees and expenses, of the MSCI China Real Estate 10/50 Index.

The underlying index tracks the performance of companies in the MSCI China Index (the “parent index”) classified in the real estate sector, as defined by the index provider. Summarily, ETF investors get the following:

  • Targeted exposure: CHIR is a targeted play on the real estate sector in China — the world’s second-largest economy by GDP.
  • ETF efficiency: In a single trade, CHIR delivers access to dozens of real estate companies within the MSCI China Index, providing investors with an efficient vehicle to express a sector view on China.
  • All share exposure: The index incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, red chips, P chips, and foreign listings, among others.

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A look back, and ahead, at Canada’s commercial real estate landscape

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MSCI head of real estate economics Jim Costello and LaSalle Investment Management global strategist Jacques Gordon, speaking at the Global Property Market conference in Toronto.. (Steve McLean RENX)
MSCI head of real estate economics Jim Costello (right) and LaSalle Investment Management global strategist Jacques Gordon, speaking at the Global Property Market conference in Toronto.. (Steve McLean RENX)

This year’s Global Property Market conference opened with presentations which looked both forward and back . . .  reviewing the major trends of 2022 and offering an investment outlook for 2023.

Following are snapshots of what MSCI head of real estate economics Jim Costello and LaSalle Investment Management global strategist Jacques Gordon had to say during their talks at the Nov. 29 event at the Metro Toronto Convention Centre.

MSCI is a New York City-headquartered provider of decision support tools and services for the global investment community and Costello has 30 years of experience analyzing the relationships between real estate and economics.

LaSalle is a global real estate money manager with more than $81 billion in assets under management.

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Gordon has been responsible for the macro strategy and micro research used to guide all investment decisions in 30 countries, but will soon take a new role as executive in residence at the Massachusetts Institute of Technology Center for Real Estate.

Jim Costello, MSCI

Costello said the real estate industry has enjoyed a period of tremendous returns globally and in Canada, but that dropped significantly in Q3 and major challenges remain ahead.

The global volume of real estate deals valued at more than $10 million is down from last year, when there was an enormous flow of capital into the sector. It is still, however, at an elevated level compared to historic deal flows.

“It was just a lot of folks hungry for yield in a period when interest rates were exceptionally low,” Costello said. “But as rates reset, there are going to be challenges for some of those investments.”

Many of the deals being done were larger as smaller assets that were traditionally purchased by investors with limited pools of capital behind them stopped moving earlier.

Liquidity fell in 97 of 155 global markets in the third quarter and Costello doesn’t see it picking up again for a while.

New York City was the most liquid market in the world from 2017 to 2020, but the Australian city of Sydney now holds that title.

Larger gaps have been created between buyer and seller price expectations. Costello said price corrections are needed to drive U.S office liquidity.

He believes sellers need to cut their price expectations by 15 per cent to get deals done and that number could increase.

Deal activity was down in Q3 in every asset class and the most popular markets have also changed.

Instead of traditional front-runners New York City and London, Los Angeles and Dallas have become the top global markets owing to their large number of logistics facilities and apartment buildings — two asset classes investors continue to chase.

Alternative real estate sectors — including self-storage, data centres, medical office, research and development, manufactured housing, student housing and seniors housing — have been gaining ground on more traditional asset classes.

Jacques Gordon, LaSalle Investment Management

Gordon said there were four inflection points affecting global economies and real estate in the transition from 2022 to 2023 and beyond. Things are moving:

•    from interest rates being lower for longer to higher rates with a heavier drag on cash flows;
•    from a COVID rebound to a global stall;
•    from upward price pressure to downward price pressure; and
•    from fossil fuel-driven economies to renewable energy-driven economies.

“Most of us are in private equity real estate,” Gordon said in talking about interest rates. “Whether we’re debt or equity players, we’re putting money to work for multiple years at a time.

“When you do that, you realize that we’re going to have to endure this period of, probably, 12 to 18 months of higher inflation and higher interest rates, but this too shall pass.”

Gordon said the COVID-19 pandemic “blasted a hole in the global economy” in 2020, but last year there was a “supercharged rebound with governments just blasting out surplus money.”

However, gross domestic product (GDP) numbers in countries around the world have been well below expectations in 2022.

Oxford Economics’ GDP forecasts for next year aren’t good, with several countries (including Canada) expected to have negative growth.

Real estate experienced major upward price pressure through 2021 and the first part of 2022, but now investors are having to deal with downward price pressure and declining transaction volumes in the sector.

Gordon said the depth of buyer pools has retreated across property types and, although deals can still get done, there are fewer bids for properties and sellers often don’t want to accept them.

Office vacancy rates are on the rise. JLL figures show a global vacancy rate of 14.5 per cent, with Europe at 7.2 per cent, Asia Pacific at 14.1 per cent and the U.S. at 19.1 per cent in the third quarter.

Coal, oil and gas comprise 77 per cent of the global primary energy mix, but Gordon said the future of energy looks nothing like its past.

He believes it’s going to take a lot of hard work to reduce the reliance on fossil fuels and shift toward more environmentally friendly energy.

“We in this room can commit to a net-zero-carbon world, but we need the rest of the world to come with us,” Gordon said. “Otherwise, we won’t get there.”

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Cities Face Long-Term Neglect, Not Just A Real Estate “Doom Loop” – Forbes

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There’s been a sudden spike in worrying about city problems created by declining commercial real estate (CRE) values, especially urban office buildings where increased working from home (WFH) has reduced in-office work. But instead of a CRE “apocalypse” or “urban doom loop” that some are predicting, we may just see increased economic and budget pressures, the latest chapter in America’s long-term neglect of its cities

Although the “doom loop” argument highlights real challenges, it’s a mistake to suggest American cities were in great shape prior to the Covid-19 pandemic. This framing appears in a widely-discussed recent essay in the New York Times by Thomas Edsall, “How a ‘Golden Era for Large Cities’ Might Be Turning Into an ‘Urban Doom Loop’.”

As my new book Unequal Cities (from Columbia University Press) points out, American cities have suffered persistent inequality for decades. It’s true that pre-pandemic, American cities were doing better in many ways—lower crime, growing populations, and appreciation from some scholars and policy makers that cities are important drivers of the nation’s economic innovation, prosperity, and growth. But it wasn’t a “golden era.”

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Edsall relies on an excellent recent paper from Columbia University professor Stin Van Nieuwerburgh, which views significantly increased WFH as permanent, with “broader implications for investors in equity and debt markets, productivity and innovation, local public finances, and the climate.” He contrasts a troubled urban future with recent decades, “which were in many ways…a golden era for large cities.”

The urban “doom loop” would start with increased WFH reducing urban jobs and commercial real estate values, leading to lower tax revenues and reduced city services (including police, transit, and sanitation), leading to more WFH, etc. Edsall seems to endorse the view “that the shift to working from home, spurred by the Covid pandemic, will bring the three-decade renaissance of major cities to a halt, setting off an era of urban decay.”

Van Nieuwerburgh also has a first-rate recent paper with New York University’s Arjit Gupta on falling CRE values in New York, where they introduced the concept of an “office real estate apocalypse.” As I discussed here in September, their strong empirical work is sobering, but also looks like a worst case scenario that doesn’t envision much potential mitigation from alternative uses of excess office space.

There’s no question WFH has slowed office use, especially in some central business districts, and that slowdown in turn is hurting commercial real estate values and city budgets. Of course, the Federal Reserve’s continuing interest rate hikes and apparent pursuit of a recession to fight inflation aren’t helping either.

But there are two problems with the “doom loop” discussion. First, real estate markets always fluctuate. Edsall’s essay quotes Harvard economist Ed Glaeser on potentially dire urban scenarios from CRE problems. But Glaeser also notes “conventional economic theory suggests that real estate markets will adjust to any reduction in demand by reducing price” and that’s not always a bad thing. If financial markets have over-valued CRE assets, then there will be a correction, but not necessarily an “apocalypse.”

Underused office buildings, including older and less competitive ones, still have value. I’ve written about how they can be converted into residential real estate or other uses. Edsall does quote the great urbanist Richard Florida, who notes that “downtowns and the cities they anchor are the most adaptive and resilient of human creations; they have survived far worse.”

University of Southern California economist Matthew Kahn (whose work should have been referenced in Edsall’s essay) sees expanded WFH as a force that can revive cities, especially older second-tier ones. This could lead to a more balanced national economy with wider opportunity not concentrated in a few superstar cities.

And contrasting a mythic urban “golden age” against the pending “doom loop” is dramatic, but misleading. America’s metropolitan form and politics are consistently biased against cities, and urban inequality has been persistently high for decades.

Cities anchor regional economic prosperity but are surrounded by literally hundreds of politically independent suburbs which reap many economic benefits without fully sharing costs. Cities bear a disproportionate share of those costs—education, poverty, crime, aging infrastructure, a constrained tax and revenue base—reproducing inequality and racial discrimination. Federal and state policies and aid also disfavor cities, making it very hard for them to fight inequality on their own.

Of course, a commercial real estate meltdown will make cities’ problems even harder to solve. A CRE meltdown and attendant city budget and social pressures would be another episode in how badly we treat cities and their residents. But America always has disliked and disfavored its cities, and we shouldn’t view current urban problems through distorting rose-colored glasses that see a lost “golden age” for American cities.

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