Thriving Through the Mortgage Squeeze: How Lenders Can Conquer Delinquencies, Fraud, and Falling Credit Demand

Abstract: As Canadian homeowners face rising mortgage renewal rates in 2025, lenders are bracing for an uptick in delinquencies, financial strain, and potential fraud. Cheryl Woodburn, Country Manager for Canada at Provenir, outlines actionable strategies to navigate these challenges. With over 1.2 million mortgages up for renewal—most contracted during historically low interest rate periods—borrowers are expected to experience payment increases of 20% or more. To address this, lenders must adopt advanced fraud detection systems leveraging AI and real-time analytics while offering personalized support to at-risk consumers. By combining proactive financial assistance with robust fraud defenses, Canadian lenders can sustain responsible lending practices and safeguard the financial ecosystem. Read more insights from Cheryl Woodburn and Provenir on how technology can empower lenders during these turbulent times.

As the new year approaches, Canadian lenders are preparing for the challenges posed by a significant rise in mortgage payments due to higher renewal interest rates. This shift is expected to increase delinquencies across the board and reshape how homeowners prioritize spending on other major financial obligations.

The Canadian mortgage market, characterized by shorter fixed-rate terms and elevated debt levels, is particularly sensitive to interest rate fluctuations. Despite declining interest rates and inflation this year, many homeowners will face financial strain in 2025 as they are forced to renew mortgages originated in 2020 and 2021 at significantly lower rates than those available today.

Consider these sobering numbers from the Canada Mortgage and Housing Corporation (CMHC) Fall 2024 Residential Mortgage Report:

• Renewal risk remains as 1.2 million mortgages will come up for renewal in 2025. Most of these will experience higher interest rates than when their term began: 85% of those were contracted when the Bank of Canada rate was at or below 1%.
• The mortgage delinquency rate continued to rise from historic low levels in 2024, reaching 0.19% in the second quarter, with delinquency rates on other credit products, and allowances for expected credit losses both suggesting it will continue to increase through 2025.

With more than one million mortgages up for renewal in 2025, and with many borrowers potentially facing payment increases of 20% or more compared to their previous rates, this will likely push some homeowners into prioritizing mortgage payments over other financial obligations, such as auto loans, which have also seen a rise in delinquency rates, up to 2.4% according to the CMHC Fall 2024 Residential Mortgage Report.

The potential repercussions of this scenario are concerning; as financial pressures mount, the risk of first-party fraud—where individuals knowingly misrepresent their financial situation on loan applications—may increase. So, how can lenders best help consumers who may be caught in this spending squeeze while at the same time guard against fraud?

Below are two key strategies lenders can implement to not only build a more individualized approach to help customers who are delinquent on payments, but also to fight fraud. 

Enhance Fraud Detection Mechanisms

As lenders aim to provide support to struggling borrowers, they must also bolster their defenses against fraud while not impacting the customer experience. Implementing a fraud prevention platform that combines advanced analytics, real-time data access and machine learning is critical to quickly detect and prevent fraud. Using a variety of both traditional and alternative data sources and advanced analytics/AI in decisioning credit risk workflows helps lenders to quickly make smarter decisions and share information across identity, fraud and credit for a cohesive approach. Curating a real-time data feed that is customizable and adaptable to changing market threats allows machine learning algorithms to identify patterns that indicate fraudulent behavior. For example, algorithms can analyze discrepancies in application data, flagging inconsistencies that may warrant further investigation.

By integrating these technologies into the onboarding process, lenders can proactively prevent fraudulent applications while maintaining an efficient and streamlined experience for legitimate borrowers. 

Leverage Technology for Personalized Support

To help customers navigate this challenging environment, lenders should adopt a data-driven approach to proactively identify customers in financial distress. Utilizing advanced data analytics and machine learning can enable lenders to analyze individual financial behaviors and predict potential payment issues. By segmenting customers based on risk profiles, lenders can tailor outreach and support strategies to both drive growth and reduce risk. Personalized communication can help inform at-risk consumers about their options, such as refinancing or restructuring their loans to avoid delinquencies. Provenir can help with all of these and more!

The rise in mortgage renewal rates presents a critical juncture for Canadian lenders. With proactive measures to support consumers in financial distress and robust fraud detection mechanisms, lenders can mitigate risks while maintaining their commitment to responsible lending practices and sustaining a healthy lending ecosystem in Canada.

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