Overview of key points:

  • COVID-19 accelerated the widespread adoption of online and remote commerce
  • Criminals capitalized on the increased reliance on technology causing a jump in mortgage fraud
  • In-person business is now reopening, but the online and remote transaction infrastructure of the pandemic largely remains in place and so too does the threat of fraudsters preying on it
  • Private lenders may be an attractive target for fraud in the coming months as interest rates rise and consumers become increasingly likely to turn to non-institutional lenders
  • It is imperative that all parties involved in these transactions – private lenders, mortgage brokers, title insurers and lawyers alike – act with ongoing vigilance in guarding against fraudulent activity

The background: COVID-19 ushers in technological change

Mortgage fraud is a common problem across Canada which increased dramatically during the pandemic as a result of the technological changes ushered in by it. As the spread of COVID-19 hastened in early 2020 and a global shutdown loomed, businesses scrambled to transition into the digital world. With unprecedented urgency, commerce shifted away from physical transactions to extensive and, in many cases, exclusive online conduct.

The result: Mortgage fraud rises

The shift in the nature of transacting business bolstered the ability of companies to carry on operations, but it also provided fraudsters with a vastly expanded platform from which to probe for and exploit vulnerabilities by developing, testing and refining attack methods. Seeing an opportunity to abscond with significant profits before detection, criminals have put mortgage lenders squarely in their crosshairs. The result is that the threat of mortgage fraud is now more pronounced than ever. It is accordingly imperative for all participants in the mortgage industry to be alert to this risk and guard against it.

The emerging landscape: Private lenders may face heightened risk

In-person business is now reopening, but that does not mean the threat of mortgage fraud has lessened. The online and remote transaction infrastructure adopted en masse during the pandemic largely remains intact and, as a result, so too does the threat of fraudsters preying on it. This risk may be particularly pronounced in the coming months for private lenders. With the economy struggling to recover and interest rates rising to combat inflationary pressures, consumers who find it increasingly difficult to obtain traditional bank financing are in growing numbers likely to turn to alternative mortgage lenders, including private lenders, for their borrowing needs.

The look ahead: Protecting against private lender mortgage fraud

Private lenders, ranging from individuals to private companies and mortgage investment corporations, provide consumers with greater choice in procuring mortgage financing. However, they lack the resources and infrastructure of major institutional lenders. This can make monitoring, detecting and protecting against mortgage fraud more challenging, especially in the face of constantly evolving fraudster methods. The costs of mortgage fraud ripple broadly across the real estate industry and impact everyone. For these reasons it is incumbent upon all parties involved in such transactions – private lenders, mortgage brokers, title insurers and lawyers alike – to act with collective vigilance in guarding against fraud. To borrow a widespread catchphrase from the pandemic: we are all in this together. Indeed, it is perhaps more important now than it ever has been for mortgage industry participants to act together in combating fraud.