Protecting Against Mortgage Fraud by Private Lenders: Collective Vigilance Required in the Face of Rising Interest Rates

Overview of key points:

  • COVID-19 has accelerated the widespread adoption of online and remote commerce
  • Criminals have taken advantage of increased reliance on technology, causing mortgage fraud to rise
  • In-person business is now reopening, but the pandemic’s online and remote transaction infrastructure remains largely in place, as does the threat of fraudsters feeding on it
  • Private lenders could be an attractive target for fraud in the coming months as interest rates rise and consumers are 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 – act with constant vigilance to guard against fraudulent activity.

The context: COVID-19 ushers in technological change

Mortgage fraud is a common problem across Canada that has increased dramatically during the pandemic due to the technological changes it has brought about. As the spread of COVID-19 accelerated in early 2020 and a global shutdown loomed, businesses raced to transition into the digital world. With unprecedented urgency, commerce has shifted from physical transactions to extensive and, in many cases, exclusive online conduct.

The result: Mortgage fraud is on the rise

The change in the nature of business transactions has strengthened the ability of businesses to continue their operations, but it has also provided fraudsters with a greatly expanded platform from which to find and exploit vulnerabilities by developing, testing and refining methods of attack. ‘offensive. Seeing an opportunity to get away with big profits before they were detected, the criminals put mortgage lenders squarely in their sights. The result is that the threat of mortgage fraud is now more pronounced than ever. It is therefore imperative that all players in the mortgage industry pay attention to this risk and prevent it.

The Emerging Landscape: Private Lenders May Face Increased Risk

In-person business is now reopening, but that doesn’t mean the threat of mortgage fraud has diminished. The online and remote transaction infrastructure adopted en masse during the pandemic remains largely intact and, therefore, so does the threat of fraudsters preying on it. This risk could be particularly pronounced in the coming months for private lenders. As the economy struggles to recover and interest rates rise to combat inflationary pressures, consumers who are finding it increasingly difficult to obtain traditional bank financing are increasingly turning to alternative mortgage lenders, including private lenders, for their borrowing needs.

Looking Ahead: Protecting Against Private Lender Mortgage Fraud

Private lenders, whether individuals, private businesses or mortgage investment companies, provide consumers with more choice in mortgage financing. However, they lack the resources and infrastructure of major institutional lenders. This can make monitoring, detecting, and protecting against mortgage fraud more difficult, especially in the face of ever-changing fraudsters’ methods. The costs of mortgage fraud reverberate widely throughout the real estate industry and affect everyone. For these reasons, it is incumbent upon all parties involved in such transactions – private lenders, mortgage brokers, title insurers and lawyers – to act with collective vigilance to guard against fraud. To borrow a common slogan of the pandemic: we are all in this together. Indeed, it is perhaps more important today than ever that players in the mortgage industry act together in the fight against fraud.

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