Genesis Mortgages Ltd.

Justice for Victim's of Mortgage Fraud

From The Globe and Mail

It takes a big person to admit he's wrong. Thankfully, there were enough big people on the Ontario Court of Appeal to admit the court was "incorrect" when it held an innocent homeowner responsible for paying for a mortgage registered fraudulently in the homeowner's name. The judges might have also said their colleagues who made the earlier ruling had turned justice on its head, failed to glimpse the forest in the confusion of trees and generally had a bad day at the office. It doesn't really matter, however. In the end, they cast aside a terrible precedent and made a sensible decision.

Susan Lawrence of Toronto went to her bank one day to inquire about selling her home. Ah, the bank said, you already have! We have the documents right here to prove it. Alas, the documents were forged. A woman posing as Ms. Lawrence had created a phony $318,000 sale agreement involving another imposter, Thomas Wright. Mr. Wright asked for and obtained a $291,000 mortgage from Maple Trust.

As Madam Justice Eileen Gillese summarized the legal question, "In a contest between the two innocent parties -- the homeowner and the> lender of mortgage monies -- who wins?"

That sounds like a provocative question for a law-school exam. Might be fun in a counterintuitive way to argue for the lender. But the Ontario Court of Appeal ruled in a different case two years ago that the lender wins. All three judges who heard the case agreed on that. In that case, a woman fraudulently obtained a mortgage on her husband's share of their house by forging her husband's signature on a power of attorney. She defaulted on the mortgage payments. The husband was held responsible for the mortgage fraudulently registered against him. Why? Because a home sale was valid once the land title was registered, fraud or no fraud.

This was law without justice. A lower-court judge said as much, not in so many words, when a similar case came before him in Ontario Superior Court last November. In an age when identity theft is increasingly common, said Mr. Justice Randall Echlin, "a homeowner's rights ought to be at least equal to the rights of commercial lenders."

For the new case, the Ontario Court of Appeal used a five-judge panel instead of the usual three. It brought out the heavyweights, including Chief Justice Roy McMurtry, and borrowed one judge, Mr. Justice James MacPherson, from the previous panel. Maple Trust, said the five judges unanimously, "had an opportunity to avoid the fraud. It did not take from a registered owner. Therefore, despite registering its charge, Maple Trust loses in a contest with the true registered owner." Justice delayed is better than no justice.

Canadian Interest Rates "Steady as she Goes" Jan 2007

Bank of Canada keeps target for the overnight rate at 4 1/4 per cent
OTTAWA—The Bank of Canada today announced that it is maintaining its target for the overnight rate at 4 1/4 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 4 1/2 per cent.
Global economic expansion has remained robust, although economic growth in the United States slowed during 2006. With weaker U.S. growth, output growth in Canada decelerated, likely averaging about 1.6 per cent in the second half of 2006. This was largely due to reduced U.S. demand for building materials and motor vehicles — which has adversely affected Canada's exports — and to the need for Canadian businesses to adjust inventories. Final domestic demand in Canada has continued to contribute strongly to growth. Inflation has evolved largely in line with the Bank's expectations in the October Monetary Policy Report (MPR), with total CPI inflation slightly lower than projected and core inflation slightly higher. The Bank judges that at the end of 2006, the Canadian economy was operating at, or just above, its production capacity.

There are signs that a significant amount of the adjustment in the U.S. housing and automotive sectors has already taken place and that the inventory correction in Canada is well advanced. Accordingly, the Bank projects that economic growth in Canada will pick up to about 2 1/2 per cent in the first half of 2007, and that the economy will continue to operate near its production capacity throughout 2007 and 2008. Total CPI inflation should average just above 1 per cent in the first half of 2007, returning to the 2 per cent inflation target in early 2008. Core inflation should return to 2 per cent in the first half of 2007 and remain there. The Bank continues to judge that the risks to the inflation projection are roughly balanced, but the main upside and downside risks outlined in the October MPR have diminished somewhat. In line with the Bank's outlook, the current level of the target for the overnight rate is judged, at this time, to be consistent with achieving the inflation target over the medium term.

Beacon Score: Just what is it?

MANNER OF PAYMENT (NORTH AMERICAN STANDARD ACCOUNT RATINGS):
"R" = Revolving or Changing "I" = Static or Constant

0 - Too new to rate; approved but not used
1 - Pays (or paid) within 30 days of payment due date
or not over one payment past due
2 - Pays (or paid) in more than 30 days from payment
due date, but not more than 60 days, or not more
than two payments past due
3 - Pays (or paid) in more than 60 days from payment
date, but not more than 90 days, or not more than
three payments past due
4 - Pays (or paid) in more than 90 days from payment
due date, but not more than 120 days, or four payments
past due
5 - Account is at least 120 days overdue but is not yet rated “9”
7 - Making regular payments under a consolidation order or
similar arrangement
8 - Repossession (voluntary or involuntary return of
merchandise).
9 - Bad debt; placed for collection; skip

DEVELOPMENT OF BEACON

Overview

Beacon is a full service generic credit bureau scorecard system that has been developed jointly by Equifax Canada and The Fair Isaac Companies. Beacon converts the collective experience of reporting credit grantors, collection agencies, public record information, and inquiries that are found on a consumer’s credit bureau report to a numeric score that can be indicative of future payment behaviour. The score is particularly valuable if the associated performance is tracked within the framework of an individual credit grantor’s own decision making processes. Armed with a Beacon score and knowledge of the past relationships between score, approval decisions, and performance, a credit grantor can greatly enhance his effective credit management decisions’.

Beacon was developed using Equifax’s extensive national credit file database and Fair Isaac’s sophisticated scorecard development techniques. Employing seven individually targeted scorecards, each tailored to evaluate a particular segment of the population, Beacon is designed specifically to distinguish good credit risks from various types of bad credit risks.

Beacon scores range from the 400’s to the 800’s, with higher scores indicating better credit risks.
Score Range: 430 - 850

Cost of Borrowing: A Definition in Mortgage Financing

COST OF BORROWING
Calculation of the APR

APR = {C / (T x P)} x 100

For the purpose of section 7.2 of the Act, the cost of borrowing for a mortgage is the annual rate on the principal as calculated using the formula, in which,
"APR" is the annual percentage rate cost of borrowing,
"C" is the cost of borrowing within the meaning of section 5 over the term of the mortgage,
"P" is the average of the principal of the mortgage outstanding at the end of each period for the calculation of interest under the mortgage, before subtracting any payment that is due at that time, and
"T" is the term of the mortgage in years, expressed to at least two decimal points of significance.
For the purpose of subsection (1),
the APR may be rounded off to the nearest eighth of a per cent;
each instalment payment made on the mortgage must be applied first to the accumulated cost of borrowing and then to the outstanding principal;
a period of,
one month is 1/12 of a year,
one week is 1/52 of a year, and
one day is 1/365 of a year;
if the annual interest rate underlying the calculation is variable over the period of the mortgage, it must be set as the annual interest rate that applies on the day that the calculation is made;
if there are no instalment payments under the mortgage, then the APR must be calculated on the basis that the outstanding principal is to be repaid in one lump sum at the end of the term of the mortgage; and
a mortgage for an amount that comprises, in whole or in part, an outstanding balance from a prior mortgage is a new mortgage for the purpose of the calculation.
The cost of borrowing for a line of credit or credit card secured under a mortgage is,
if the mortgage has a fixed annual interest rate, that annual interest rate; or
if the mortgage has a variable annual interest rate, the annual interest rate that applies on the date of the disclosure.

Included and excluded charges

Subject to subsection (2), the cost of borrowing for a mortgage, other than one that secures a line of credit, consists of all the costs of borrowing under the mortgage over its term and including the following charges:
Administrative charges, including charges for services, transactions or any other activity in relation to the mortgage.
Charges for the services, or disbursements, of a lawyer or notary that the lender required the borrower to retain.
Insurance charges other than those excluded under clauses (2) (a) and (f).
The mortgage broker's charges, if they are included in the amount borrowed.
Charges for appraisal, inspection or surveying services provided directly to the borrower in relation to the property that is security for a loan.
The cost of borrowing for a mortgage does not include,
charges for insurance on the mortgage,
if the insurance is optional, or
if the borrower is its beneficiary and the amount insured reflects the value of an asset that is security under the mortgage;
charges for an overdraft;
charges paid to register documents or obtain information from a public registry about security interests related to property given as security;
penalty charges for the prepayment of the mortgage;
charges for the services, or disbursements, of a lawyer or notary, other than those mentioned in paragraph 2 of subsection (1);
charges for insurance against defects in title to real property, if the insurance is paid for directly by the borrower;
charges to maintain an account that are required for a high-ratio mortgage or that are optional;
any charges to discharge a security interest; or
default charges.

Canadian Banks & Real Estate Fraud

Banks defend home-fraud record
Industry says lenders are `prudent, conscientious,' perform `due diligence'
Nov. 5, 2006. 07:48 AM
HAROLD LEVY
TORONTO STAR STAFF REPORTER

In the face of recent blistering criticism of their mortgage-lending practices by a Toronto judge, Canada's banks have countered that that they are constantly on the lookout for fraud.
They say it is unfair to single them out when other parties, such as lawyers and real estate agents, have a critical role to play in ensuring that real property transactions are clean.

Superior Court Justice Randall Echlin sent shock waves through the Canada's finance industry last week in the case of a North York couple whose luxury condominium was stolen by identity thieves.

Echlin blasted the TD bank for failing to make the most basic inquiries — such as having an appraiser knock on the couple's door to see if they had actually put the mortgage on the property — before advancing $250,000 to the thieves who took the money and ran, leaving the innocent couple on the hook.

He found instead that the bank had delegated responsibility for checking out the loan to a mortgage broker, "important tell-tale signs of the fraud" had been ignored," and that "if any of these simple matters had been noticed, the fraud might have come to light."

Echlin's blistering decision is being widely seen as a warning to the banks that if they don't do a thorough job of checking out the loan themselves, the courts are not going to treat them as innocent victims of fraud.

It has also led to criticism that the banks are too focused on competition and keeping shareholders happy to take needed steps to stem what the judge bluntly called, "a serious mortgage fraud plague" in Ontario.

But the Canadian Bankers Association (CBA) insists that its members, which include all of Canada's major banks, are intensely concerned about the harm caused by mortgage fraud, that they work closely with the police, and that they are doing their utmost to prevent it.

"I can say very generally that banks are prudent and conscientious mortgage lenders and that mortgage defaults are incredibly low," CBA spokeswoman Maura Drew-Lytle told the Toronto Star.

"Before granting a mortgage, banks complete a thorough due diligence process."

"Nobody wants to see any fraudulent activity going on."

Drew-Lytle says that "each application is looked at on an individual basis, that bank officials look for the "red flags" that may indicate further investigation is required and that the banks are playing an active role in working with other groups, "to collectively stop mortgage fraud."
She also stressed that the banks are not Canada's only mortgage lenders — they represent about 60 per cent of the mortgage lenders in Canada — and that banks are only one of the "many parties" involved in real property transactions.

Other parties, such as lawyers, real estate brokers, mortgage insurers, and appraisers "have to
do their due diligence, too."

But Ontario's real property appraisers say the banks are contributing to the plague of mortgage fraud sweeping Ontario by relying on computers — instead of human beings — to make their funding decisions.

The machines, computers using "automated valuation model" technology," come up with a probable value for the property, based on inputted public record information relating to sales of properties in the neighbourhood.

Brent Williams, president of the Ontario Association of the Appraisal Institute of Canada, says reliance on this technology "to get a quick turn around on mortgage transactions" removes a key element from the loan approval process: "the personal contact that takes place if a third-party appraiser conducts an on-site valuation."

Toronto appraiser Michael Roman says the automated valuation systems may be effective in subdivisions where homes tend to be carbon copies of each other, but can break down in older, more complex neighbourhoods in a city like Toronto, where renovations have an impact on the value of aging properties.

"The bank's computer will confirm a value which may support a higher value than the property's actual worth if inaccurate data, and possibly "embellished listings by a friendly real estate agent" have been used. Roman points out that computer programs are cheaper, at $50 to $75 per valuation, than human appraisal costs that can run up to $250.

Banks also know that computers offer quicker turnarounds than using an appraiser.

Roman believes banks feel the need to provide "a more user-friendly service to their customers in a very competitive market."

Bankers association spokeswoman Drew-Lytle acknowledges that Canadian banks use the automated service but says banks rely "on many factors before approving loans."
Joe Barbera, a communications consultant with extensive banking industry experience, said in an interview that, "in the past, decisions on mortgages were paper-driven by local bankers and mortgage specialists in their neighbourhoods."

But now, "more decisions are technology-based, driven by computer models and data bases, away from local communities" as financial institutions are "pressured to drive sales."

(as seen in The Toronto Star)

Genesis Mortgages Ltd.

Justice for Victim's of Mortgage Fraud

Canadian Interest Rates "Steady as she Goes" Jan 2007

Beacon Score: Just what is it?

Cost of Borrowing: A Definition in Mortgage Financing

Canadian Banks & Real Estate Fraud

Canadian Interest Rate Forecast: "Just an Opinion"

Economic Monetary Policy - Bank of Canada Oct '06

Economic Forecast for August '06: "Just an Opinion"

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