Mortgages  

The rise in mortgage fraud

Earlier this year, a mother and son who used self-certification to commit systematic mortgage fraud with buy-to-let properties were jailed.

Not long after, a gang that included a policeman, a solicitor and a surveyor were also convicted of mortgage fraud worth £20m. Similar cases are frequently in the headlines and many have emerged since the financial crisis. Several only became apparent once the mortgage market began to slow down and some have been so complex they have taken years to resolve.

In its 2013 Annual Fraud Indicator report, the National Fraud Authority estimates the annual loss attributed to mortgage fraud at £1bn. Based on the National Hunter anti-fraud data-sharing system, it believes there were 6,621 cases in 2012 with an average advance of around £121,000.

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Unfortunately, statistics suggest that in 2013, mortgage fraud is more rife than ever before. A report by Experian says that attempted mortgage fraud rose to 38 cases in every 10,000 applications in 2012, up from 35 per 10,000 in 2011. Chart 1 shows the rise in mortgage fraud compared to all other types of fraud from 2006 to 2012.

Hardship

Some 89 per cent of those frauds were by individuals misrepresenting their financial circumstances such as income, credit history or employment status. This first-party mortgage fraud is fuelled by the economic squeeze coupled with the tighter criteria adopted by lenders in the aftermath of the credit crunch and in anticipation of the new regime due in 2014 following the Mortgage Market Review (MMR). Financial hardship is definitely a factor driving the rise in attempted fraud and the tightened lending criteria that have come into play simply add to the temptation.

So how much scope is there for the frauds committed at the height of the mortgage market to be carried out now? Clearly, it is not just that hard times and more stringent criteria are pushing people to behave dishonestly; lenders are being affected by the same factors. In the current environment of funding shortages and flatlining – if not falling – house prices, and with primary responsibility for assessing affordability, lenders are keen not to let their money fall into the hands of fraudsters. They have had to get a lot better at detecting fraud; as Experian points out, the increased scrutiny, stress-testing and affordability checks have enabled more frauds to be detected.

The Council of Mortgage Lenders (CML) has been involved in work that the FCA under its previous guise, the FSA, carried out to produce a set of guidelines for lenders to help detect financial crime. These include procedures for helping to detect and prevent application, identity, valuation and registration fraud in the mortgage lending process.

For example, lenders now make detailed checks of mortgage applications to combat potential fraud. Credit reference agencies such as Experian and Equifax are used to check the applicant’s address, credit status and any other issues such as repossessions or county court judgements.

Less relaxed