3 Min Read
TORONTO (Reuters) - Bank of Montreal is suing lawyers, brokers and some of its own employees for an alleged C$140 million ($136 million) mortgage scam that may have involved hundreds of people, CBC News reported on Wednesday.
The bank, Canada's fourth largest, has suffered losses of as much as C$30 million from an elaborate scheme centered in Western Canada, the Canadian Broadcasting Corp said in a report posted on its website. (www.cbc.ca/news)
Bank of Montreal acknowledged the fraud allegations and said no customers were directly affected. It did not comment on the specifics of the CBC report.
The bank started investigating in 2006 after discovering mortgage irregularities.
"The losses were recorded in prior periods - with the majority booked in Q3 2007. We do not expect any material negative financial implications from the legal action," said bank spokesman Ralph Marranca.
According to the report, the scam involved a ring that obtained inflated mortgages for homes whose true values were much less than the size of the loans, with the ringleaders pocketing the difference, CBC reported.
Millions of dollars netted from the alleged scheme were sent overseas, the report said, citing legal documents obtained by CBC.
So-called "straw buyers," many of them new immigrants, would allow their names to be used to obtain mortgages on homes in exchange for a fee of between C$2,000 and C$8,000. Lawyers helped provide legal documentation that inflated salary and net income statements used in securing the mortgages.
As an example, the report cited a house in the Bearspaw district of Calgary that sold for nearly $900,000. In three years its value was inflated to $2.3 million, netting $1.4 million for the alleged fraudsters.
Mortgage fraud and lax mortgage standards have been blamed in part for the U.S. housing and financial crisis. Millions of American homeowners lost their homes in the crisis or found themselves "under water" -- owing more on their mortgage than their homes were worth.
"We constantly review our processes and this experience has provided some learning that we have applied to further enhance our due diligence," Marranca said.
Reporting by Pav Jordan; Editing by Frank McGurty and Peter Galloway