First Consultation on Preventing and Detecting Mortgage Fraud Guidance

Comments were provided by the following stakeholders:

  • André Hannoush, Appraisal Institute of Canada
  • Bernard Brun, Desjardins Ontario Credit Union
  • Fay Walsh, The Mortgage Source Inc.
  • Freda Watch
  • Harmel Johal
  • Kamal Saha, WFG Insurance Agency of Canada Inc
  • Naval Gupta, Navkam’s Financial Group Corp.
  • Phil Weir, DLC Canuck Mortgage Group
  • Samantha Gale, Canadian Association of Private Lenders
  • Surender Tandal, TDL Mortgages

Below is a summary of the key issues received and FSRA’s responses.

Table 1: Stakeholder comments and FSRA’s responses

Summarized Key Issues

FSRA Response
  • Two commenters questioned how FSRA responds when notified of potential fraud through tips, or when FSRA uncovers fraud through examination.

 

When FSRA discovers or receives credible information that shows evidence of potential fraud, FSRA reviews the information and takes actions that are within its powers and authority under the Mortgage brokerages, Lenders and Administrators Act, 2006 (MBLAA).


FSRA also works with other law enforcement agencies, such as local police, where appropriate, including assisting authorities who contact us about potential fraud issues. FSRA refers cases to authorities in the event of serious fraud that is detected and is better handled by law enforcement.
  • Two commenters raised concerns about how FSRA communicates its action when fraud is reported to FSRA.

FSRA’s Transparent Communication of Enforcement Action guidance describes how FSRA communicates enforcement actions.


As per previous response, when FSRA receives credible information that shows evidence of potential fraud, FSRA reviews the information and takes actions that are within its powers and authority under the MBLAA.


FSRA also works with other law enforcement agencies, such as the local police, where appropriate, including assisting authorities who contact us about potential fraud issues. FSRA refers cases to authorities in the event of serious fraud that is detected and is better handled by law enforcement.
  • Two commenters asked for greater cooperation between government agencies such as the Canada Revenue Agency (CRA) to address and prevent fraud, especially where mortgage broker sector fraud may overlap with banking and other financial services sectors.

FSRA works with other law enforcement agencies, such as local police, where appropriate, for example providing assistance when they contact FSRA about potential fraud. 


When FSRA receives credible information that may suggest potential breach of regulatory requirements outside of FSRA’s jurisdiction, FSRA will refer individuals to the relevant regulatory agencies.
  • One commenter asked about the repercussions of reporting mortgage fraud.

Persons and entities that act in good faith in informing and providing documents to FSRA about potential mortgage fraud may be protected from reprisals (e.g., being fired, demoted or disciplined, etc.) as per the whistle-blower provisions under the Financial Services Regulatory Authority of Ontario Act, 2016 (FSRA Act). See FSRA’s Whistle-blower Program. 
  • One commenter suggested modifying the language in the Checklist to indicate that appraisals should occur within 12 months if the features of a property, the project or investment have not materially changed, and 3-6 months if they have.

The Checklist for Detecting and Preventing Mortgage Fraud has been updated to incorporate the suggestion, renamed, and included as Appendix 1 in the revised Guidance as Key Steps for Detecting and Preventing Mortgage Fraud (“Key Steps”).
  • One commenter suggested amending the language in the guidance and checklist so that documentary evidence is provided to the lender or investor of the borrower’s ability to meet the mortgage payments or to have a viable plan to repay the mortgage using an exit strategy.

 

The Key Steps have been updated to incorporate the recommendation.
  • One commenter suggested adding a “fraud for enrichment of the mortgage originator” to the different categories of mortgage fraud

The Guidance uses common broad definitions of mortgage fraud. “Fraud for profit” captures all mortgage fraud where the primary goal of the mortgage transaction is financial gain. Mortgage originators committing fraud for enrichment/financial gain would fall under the category of “fraud for profit”.
  • One commenter raised concerns about the current licensing process and whether the licensing achieved appropriate education standards.

Changes to the licensing process are out of scope for this consultation. However, FSRA has been taking steps to raise and streamline educational and professional standards for the sector, as per Recommendation #5 in the 2019 Report to the Minister of Finance on the Legislative Review of the Mortgage Brokerages, Lenders and Administrators Act, 2006.


In December 2021, FSRA’s published Approach Guidance No. MB0045APP Accreditation of Licensing Courses for the Mortgage Brokering Sector to raise education standards and improve the delivery systems of education providers. The Guidance adopts the Mortgage Broker Regulator’s Council of Canada’s “Mortgage Education and Accreditation Standards User Guide”.


On February 11, 2022, FSRA and the Ministry of Finance consulted on the proposed new education requirement for mortgage agents transacting in private mortgages and brokers. The new course includes learning objectives relating to mortgage fraud detection and prevention. The new course will be a requirement for the new licensing classes effective April 1, 2023.


In April 2022, FSRA published Interpretation Guidance No. MB0047INT New Mortgage Agent and Broker Licensing Requirements. The requirements include a new education requirement for mortgage agents transacting in private mortgages and brokers.


Fraud has also been a component of mortgage broker and agent Continuing Education requirements over past cycles (i.e., 2018 and 2020).