Canada’s Biggest Mortgage Fraud

BMO-mortgage-fraud Canada’s largest-ever mortgage fraud unfolded in the press last week.

The fraud reportedly involved straw buyers who were paid up to $8,000 to buy properties for the alleged ringleaders. The accused perpetrators picked cheap homes in neighbourhoods of more expensive homes, used the surrounding home prices to grossly inflate subject property values, created forged documents to fake borrower income, and skipped town with the mortgage proceeds.

BMO is suing hundreds of people including its own employees, Realtors, over 18 lawyers, mortgage brokers, and an MP.

Details are scarce at the moment because BMO is restricted in commenting. There’s also an ongoing RCMP investigation.

An RCMP officer told CBC, “We have a number of issues. First of all, we have real estate agents to interview, mortgage brokers to interview, bankers to interview. And then we have a mortgage file to review — and it’s a huge documentary evidence file that we have to review and it can take years to investigate.”

BMO acknowledges that nothing has yet been proven and says no customers were directly affected.

“…This experience has provided some learning that we have applied to further enhance our due diligence,” said a BMO spokesman.

No doubt.

Other lenders’ risk management departments are also likely reviewing their underwriting and closing policies.


One practice this fraud puts under the microscope is that of automated computerized appraisals. Lenders use them to significantly speed up the approval process and reduce costs for consumers. However, Bob Aaron, a Toronto real estate lawyer, suggests automated appraisals may be problematic.

“The banks have been either deliberately or accidentally lulled into believing what the values are – either because they’re sloppy or because they’ve made a conscious decision to ignore values,” he says. He suggests human appraisers may help prevent fraud better than electronic ones.

That may be true in some cases.

On the other hand, tighter margins and fraud potential have made risk management departments more vigilant in the last few years. Their confidence in automated valuation systems (AVSs) comes with good reason. AVSs are highly efficient and they reliably value billions of dollars of real estate every year.

According to insurer representatives we’ve spoken with, automated appraisals are accurate to within +/- 5% of actual value over 99% of the times that they’re relied upon (often they’re not used and a real appraiser is dispatched instead).  Rarely is there a incident of magnitude attributed to AVSs, but when such incidents do make the press, it makes people question them.


mortgage-fraud-preventionA Criminal Intelligence Service report pegs Canadian mortgage fraud at “hundreds of millions” of dollars per year. The Financial Post says it ranges from $300 million to $1.5 billion. To put that in perspective, that’s roughly 3/100ths to 15/100ths of a percent of all mortgages outstanding.

Apart from prevention measures (i.e.  more detailed documentation reviews, technological safeguards, etc.), the industry would also like to see greater deterrents to mortgage fraud. In fact, CAAMP (the mortgage industry’s trade group,) petitioned the government last year to stiffen penalties for mortgage fraud.

“We suggested the penalties should be tougher for mortgage fraud, that time in prison should be doubled. People should absolutely go to jail,” said CAAMP president, Jim Murphy, to the Globe.

There is no better time than the present (after a major event like BMO’s) to revisit the campaign against mortgage fraudsters. Sights also have to be set on the smaller players. For example, we know that some people in our industry knowingly misrepresent and/or omit key information during the application process. They think it’s no big deal, but it is. The actions of these few diminish trust in our profession by lenders and public, and it hurts all of our reputations. Industry participants who falsify mortgage information need to be dealt with firmly and (when caught) removed from the business permanently.



  • Here are more facts on mortgage fraud from the CBA: Link
  • A 2007 report by the FBI suggested 80% of reported mortgage fraud in the U.S. involved industry insiders!
  • Here’s a sample automated appraisal report from MPACexample
  • Here’s a report on automated appraisals from the Appraisal Institute of Canada
  1. mortgage fraud is more of a banking concern and a criminal police matter. Its still early in the investigation but the direct insiders on this kind of fraud are usually bank employees, appraisers and RE lawyers and not mortgage brokers since all the information a mortgage broker feeds to the FI is fully reviewed by the FI’s own underwriting department and that is where the buck stops. I know for a fact BMO is not the only FI to be taken by this very fraud and as a banker, have known about it since 2007. As a unwritten rule, Joe public rarely hears about bank fraud because it undermines the banks reputation to ever suggest that your money is not safe with them.
    [Hi Banker, We copied your comment above from another thread as it was relevant to this story. Thanks, CMT]

  2. Your comment and defense of the broker industry is well-taken, but the fact remains that there’s more than a few mortgage brokers named in the Statement of Claim for this case.
    I’m interested in a different question on which maybe some readers here will have thoughts: Why do you think that BMO and other banks were so lax with their risk management? During the boom, you could get a mortgage without anyone even really looking at your ID, let alone the property, and to be honest I think the documentation was often a formality from the bank’s perspective they were so eager to lend. Do you think they knew about the potential for fraud but ignored it because of rising property values and the fact they were making so much money? Do you think they were so busy that from a practical perspective it was impossible to enforce tighter restrictions? What was actually happening at the banks at the time that frauds of this magnitude (and who are we kidding, this is probably small-fry in comparison to what we don’t hear about) could be missed?
    Thanks for your thoughts.

  3. This recent article in the Examiner seems to refute Banker in Ivory Tower’s assertion that its “more of a banking concern”
    Direct quote from article:
    “A real estate agent that wishes to remain anonymous has told me that, thanks to unscrupulous mortgage brokers, falsifying documents in mortgage applications has become rampant in Vancouver.”
    Full article here;

  4. Many consumers don’t realise but if they obtain a letter from an employer that inflates the actual income they earn, then its fraud. Its my understanding that it was common in past years for people applying for a mortgage to often fudge numbers (inflate commissions they earn, include one-time bonus in regular income etc) but I think in recent years banks have been tightening the checks and balances and doing more due diligence than ever before like phoning for verifications, wanting actual check stubs, tax returns etc. Any long-time brokers care to verify such?

  5. The “Examiner” is not exactly a reputable source. It looks like they let almost anyone submit articles.

  6. To clarify, my comment (that was actually attached to a earlier thread) was to refute a suggestion made that the BMO mortgage fraud case was primarily a broker concern. Again it’s a banking and police concern since overall (baring exceptions) it does not appear Mortgage Brokers shared in the proceeds of this crime.
    My direct involvement in past mortgage fraud cases of this type suggests that any involvement from mortgage brokers was generally passive in that they were just pushing paper and leaving the FI to verify the details.
    What should be of great interest and grave concern to all mortgage brokers is that it would appear that in the BMO case, BMO wants blood and they don’t care where they get it. It would seem they are implicating anyone who was remotely involved. BMO’s actions suggest that they aim to prove the Mortgage Brokers, RE Lawyers, RE Agents and Appraisers were negligent rather than maybe directly involved in the fraud. If proven, the liability could be staggering!

  7. Unless a broker knowingly submits a fake document they should have absolutely no liability to the lender. Brokers are not document authenticity experts. That is the lender’s job. If the lender can’t do their job they should not look for scapegoats.

  8. The fact of the matter is that when the banks take virtually zero risk on CMHC backed mortgages. Incentives to adequately vette mortgages applications with due diligence will evapourate along with morals and professional obligations. When the cash flows in like water less questions are asked and more heads turn away. Its been proven again and again when there is a political agenda/directive to approve much more high risk borrowers to falsely hold up a market, lending standards are thrown out the window(CMHC has openly admitted that they decided to take on more high risk loans). When you add in the fact that banks aren’t on the hook for CMHC backed mortages AT ALL. You have a criminogenic environment that breeds fraudulent behaviour. Just look at how the U.S. mortgage frauds exploded in volumes during the bubble times. It happens everywhere and you just can’t stop it when the current administration is basically throwing taxpayer secured credit at anyone with a pulse. Canadian financial system is not much more prudent the the Americans. They’re just willing to put the taxpayer on the hook for any losses in the housing market which instills a facade of confidence to external bond investors. The ignorance of most Canadians about this just adds icing on the cake.

  9. Curious to hear others’ thoughts on Gary’s argument – as someone not directly connected to the industry I don’t have much to offer, but am interested in hearing more “behind-the-scenes” reasons the banks did such poor due diligence during the boom.

  10. “banks take virtually zero risk on CMHC backed mortgages.” (Quoted from above)
    I don’t think the person who wrote this understands how default rates affect banks. If he did, he would not have made that statement.

  11. Gary
    Your post is a list of accusations with no facts to back them up. Normally I’d just ignore this kind of thing as agenda-driven exaggerations but people like you do a disservice to others with these rants.
    When you say things like “the current administration is basically throwing taxpayer secured credit at anyone with a pulse,” you discredit yourself in the eyes of any knowledgeable observer. No one who understands mortgage underwriting would agree with this statement. It is completely and utterly false.
    99.6% of insured mortgages are not in arrears according to the CBA. The average insured mortgage credit score is near 700. The average home buyer’s TDS ratio is 33% per CAAMP. These are anything but “risky” mortgages. In fact, these mortgages are among the safest non-government assets in the world, literally.
    It is sad how uninformed messages get this kind of exposure. You need to do some research Gary and cite facts instead of opinions.

  12. Can you please clarify how exactly they made money on these transactions? Is it just the fees and kickbacks from the banks??? Straw borrowers end up owning the mortgage after all…

  13. I’m not sure if this is actually what happened but here is my understanding.
    The crooks made a deal with clueless “straw buyers” to buy houses that the crooks already owned. The crooks made sure the strawmen paid far more than the houses were actually worth.
    The crooks helped the strawmen qualify for these mortgages with fake documents and artificial appraisals. The strawmen then got much bigger mortgages than the true property values and incomes would have supported.
    The crooks then took the mortgage proceeds and fled the country.
    The straw buyers seem to be innocent but ignorant victims in all this.

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