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In a startling expose, a whistleblower brought to attention a mortgage fraud scandal involving over 10 HSBC branches in the Toronto area since 2015. This prompted investigations by the Bureau and Fintrac, uncovering a complex money laundering scheme.

The aftermath of this fraud extends beyond the illegal activities, impacting housing prices and leaving both regulators and homebuyers grappling with the consequences of a widespread mortgage fraud scheme. 

Though HSBC fired the individuals involved in the money laundering concerns, fraudulent mortgages point to a systemic failure in the banking sector. As millions of Canadians grapple with the persistent housing affordability crisis, the question arises: Can banks be relied upon to conduct thorough due diligence?

HSBC Mortgage Fraud Explained 

The HSBC mortgage fraud unfolded through a series of deceptive practices. Beginning in 2015, more than 10 HSBC branches in the Toronto area were implicated in fraudulent mortgage activities. The whistleblower, identified as D.M., disclosed that HSBC had issued over $500 million in mortgages to foreign buyers who were leveraging fake documents with exaggerated incomes.

This led to an investigation by The Bureau and Fintrac who analyzed over 48,000 transactions during the pandemic. These transactions revealed a dark and complex money laundering scheme orchestrated through the HSBC branches.

How Does The Mortgage Fraud Work Exactly? 

The HSBC mortgage fraud is a classic example of money laundering. Essentially, individuals will use “black money” to get a large mortgage. Black money is income earned through illegal means or income that’s been hidden from taxation.

Once the mortgage is approved, they’ll pay off the house with the “black money” and then sell the property to get legitimate Canadian dollars. 

When approving a mortgage, banks will require applicants to provide evidence of their income and employment. However, by exploiting the deficiencies in banking systems, many individuals with black money are avoiding detection and being approved for mortgages. 

This is also due to several other factors including the involvement of corrupt HSBC Canada staff, and fraudulent income/employment verification centres and records.

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How Has The HSBC Mortgage Fraud Impacted The Affordability Housing Crisis?

According to D.M., the HSBC whistleblower, HSBC is not the only bank involved with mortgage fraud in Canada. CIBC and other Canadian banks also have systematic problems, which further highlights a troubling trend where individuals involved in transnational money laundering seamlessly transfer funds through different banks, evading scrutiny. 

According to D.M., the rise in “housing prices in Toronto are linked to this, because this is about income verification in banks, which is supposed to moderate demand.”

The investigation by the Bureau also suggests that there may be billions of dollars issued in questionable mortgages by HSBC and other Canadian banks which may be fueling the housing bubble, particularly in Toronto and Vancouver.

How Mortgage Fraud Is Affecting Canadian Homebuyers

Unfortunately, without proper banking systems and income verification processes in place, Canadians may be priced out by fake documents and scammers. 

According to D.M., mortgage fraud in Canada “is not only a financial issue but also has broader implications for the accessibility of housing for law-abiding citizens”. 

These fraudulent activities distort the housing market, making it increasingly difficult for genuine home buyers to compete. As prices are artificially driven up, the dream of homeownership becomes more elusive for those who abide by legal and ethical means to secure a home loan.

We can only hope the government and the banks implement laws that will not only protect Canadians but also penalize those involved in the fraud. These measures should extend to banks to ensure consistency in due diligence in lending practices. 

Transparency, accountability, and proactive regulatory frameworks are essential components to foster a banking environment that prioritizes the interest of the public and maintains accessibility.

How Have House Prices Changed Over The Last 5 Years? 

Over the past 5 years, Canada’s housing market has undergone significant shifts driven by rising interest rates and constrained inventory. The Bank of Canada implemented 10 interest rate hikes, increasing the overnight rate from 0.25 % to a historic high of 5% in 18 months. 

Following initial declines in late 2022 due to rate hikes, housing prices rebounded, leading to an overall surge in affordability challenges. 

Zoocasa’s analysis comparing August 2018 to August 2023 reveals that Canada-wide, composite homes, a term used to describe households that consist of multiple families, several individuals living together, rose from $541,900 to $750,100. 

Condo prices also increased by approximately $120,600, while townhouses increased by $204,300 and single-family homes by $241,600. 

The greater Toronto Area (GTA) saw the most substantial increases, with composite home prices reaching $1.1 Million in August of 2023. Other Ontario regions, like Barrie and Hamilton-Burlington, also experienced significant jumps exceeding $300,000. 

Conclusion

The HSBC fraud raises valid concerns about the efficacy of due diligence in banks. As Canadians continue to face the challenges of rising costs of living, rebuilding trust in the financial system demands a thorough reassessment of banking procedures and a commitment to stringent oversight. 

Moving forward, it becomes necessary for regulatory bodies and financial institutions to collaborate on implementing protective measures that not only prevent fraudulent activities but also safeguard the interests of the Canadian public. A transparent and accountable banking system is essential to restoring confidence and ensuring that the housing market remains accessible and fair for all Canadians.

Maidina Kadeer, BA avatar on Loans Canada
Maidina Kadeer, BA

Mai Kadeer is a graduate of Concordia University, with a BA in English Literature, with a minor in Law and Society. Mai was a student strategist on the Concordia University Senate (2016), through the Academic Planning and Priorities committee. She has a background in financial budgeting as a board member for non-profit organizations, such as the Quebec Public Interest Research Group and the Concordia Food Coalition. For the past five years, Maidina has worked as a content specialist. Mai is passionate about helping Canadian consumers with financial management and literacy so they can make informed decisions regarding their personal finance.

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