Credit crunch fuelling mortgage fraud among brokers
Fears abound that the ongoing credit crunch is fuelling incidents of mortgage fraud as brokers are under increasing pressure to manipulate applications in order to get deals accepted by lenders.
Experts say that “soft” or opportunist fraud tends to increase in tougher economic climates, and evidence suggests that this is already occurring.
In July alone, the financial regulator has taken action against nine mortgage brokers, including four firms for mortgage fraud activity.
On 3 July, the Financial Services Authority (FSA) banned John Akinduro, of Highflyer Business Services, for submitting mortgage applications in the names of two people without their knowledge or consent. One day later, it took action against Sadia Nasir, director of House of Finance, for submitting seven applications containing false information and lying about her own financial circumstances on buy-to-let applications. She also entered her own bank details on mortgage applications for several clients.
On 7 July, the FSA fined broker Ian Sanderson of Mortgage Master £11,900 for deliberately using false salary and employment information on several mortgage application forms.
And, most recently, on 17 July Derick Whewall and Alan Hewitt, partners of The Mortgage Exchange, were banned for failing to protect their customers from fraud. The action against the five other brokers during July was related to offences from putting clients at risk of unsuitable advice to failing to return their business forms to the regulator.
The FSA now plans to visit 200 financial firms to ensure that their systems protect customers from the risk of fraud.
Meanwhile, three con artists have been jailed for committing a £1.2 million mortgage fraud after they posed as potential home buyers and laundered the money into gold bullion.
In total, the FSA has banned 17 mortgage brokers for fraud-related incidents so far this year and - with 24 investigations still in the pipeline - more are to be expected going forward. It has even doubled its mortgage fraud investigation team to help tackle the problem.
Robin Gordon-Walker, a spokesman for the FSA, admits that it doesn’t know how rife fraud is among mortgage brokers, but admits that it could be widespread.
Recent reseach from CIFAS, the fraud prevention service, found that cases of fraud are on the rise as the credit crunch makes it harder for people to access credit.
Neil Munroe, director of operations at credit record agency Equifax, agrees that the economic climate could be prompting incidents of fraud – from borrowers as well as brokers.
“Fraud has been present in the mortgage market for some time, but the evidence suggests it is increasing,” he adds. “There are a lot of mortgage brokers out there that rely on income from fees and commission and there is increasing pressure on them as it gets harder for people to borrow.
“This seems to be symptomatic of a situation where fraud can increase.”
Another cause for concern is that lenders are too busy worrying about the impact of the credit crunch to fully access applications and ensure the information supplied is accurate.
The FSA’s Gordon-Walker says: “Some lenders could do more to filter their systems and report suspicious incidences. But this isn’t at the forefront of their minds.”
Despite the concerns, the FSA and brokers are at pains to point out that mortgage fraudsters remain in the minority among advisers.
Gordon-Walker says: “The majority of brokers are honest and follow the rules as best they can. There is no evidence that the credit crunch is forcing otherwise honest brokers to turn to crime – most fraud is deliberate and is committed by organised fraudsters.”
And David Hollingworth, a mortgage specialist at broker London & Country, adds: “The FSA has cracked down on this area and is weeding out the few bad apples in the industry. There is no suggestion that fraud is rife in the mortgage market. From a positive point-of-view, every time a broker is banned for fraud there is one less cowboy operating in the market.”
Mortgage lenders say they welcome efforts by the regulator to crack down on fraud.
Michael Coogan, director general of trade body, the Council of Mortgage Lenders (CML), says: “People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more."
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.