Tackling fraud in the mortgage market

29 July 2010 | By Lee Jones

BDO Stoy Hayward recently revealed that one in five financial frauds in the UK are mortgage-related and the swathe of FSA fines and bans bears witness to the big levels of poor practice and outright fraud of some financial advisers and mortgage brokers that occurred under the cover of the most recent property boom.

Since its inception, the FSA has banned 92 mortgage brokers for mortgage fraud and issued £1.5m in fines, with a third of this occurring in the last year alone.

BDO says of the £1.06bn of all UK fraud perpetrated in the UK in the first half of the year, £190m or nearly 20 per cent was mortgage fraud, up from 18 per cent at the end of 2009.

As a response to the level of mortgage fraud and as part of the mortgage market review, the FSA has decided to change mortgage regul-ation so that all advisers must be approved persons to offer mortgage advice from the start of 2011.

The FSA says: “We believe this will lead to increased transparency within the industry and help to prevent unfit or rogue individuals from entering the industry to protect consumers from fraud.”

The abolition of self-certifi-cation or fasttrack mortgages should also remove an easy way to exaggerate or falsify mortgage applications.

But London & Country head of communications David Hollingworth says the fallout from fraud goes further than brokers having “a few more boxes to tick” through increased regulation.

’Lenders may try and control the distribution of mortgages more so to have a better handle on fraud and this might be to the detriment of some advisers who have done nothing wrong’

He says: “Lenders may try and control the distribution of mortgages more to have a better handle on fraud and this might be to the detriment of some advisers who have done nothing wrong.

“I think everyone should be angry with these fraudulent brokers. When you get the big negative headlines about fraud, with people from within being complicit in that, it does besmirch the industry.”

Association of Mortgage Intermediaries director Robert Sinclair says fraud is damaging the reputation of decent mortgage brokers and needs to be eradicated.

Sinclair says: “I represent a group of brokers who want to see fraud eradicated. We want it gone as much as anyone else as it does us no good at all. It damages the reputation of the great and the good so we support any actions the lenders take to deliver that.”

The long list of FSA bans and fines is clear proof of fraudulent broker activity.

But PMS executive chairman John Malone says brokers are being unfairly labelled the sole propagators of fraud, which further tars the sector.

He wants to see a fair portioning of the blame and more importantly wants honest brokers to be aware of fraud around them. He has been speaking publicly about the need for brokers to be wary of any new relationships with other businesses in the mortgage supply chain such as conveyancers, solicitors and lead generators.

Malone says: “We have to get the message out to the mortgage intermediaries that they do have fraud on their doorstep even if they are not aware of it. I want brokers to look around and to realise that they have to be more careful than they have been in the past.”

Malone has also been calling for an intermediary presence on national fraud committees to help level the playing field and get broker input into how best to deal with mort- gage fraud.

While it may lead to bad headlines in the press, many brokers suggest the current crackdown on fraud will pay dividends in the long run.

Hollingworth says: “You can either look at yet another fraudulent broker ban as negative news or you can see it as a real positive that the FSA is wheedling some of these guys out.”

The MMR itself is in part a response from the FSA to close the loopholes in the mortgage lending process so as to stop fraud.

First Action Finance head of communications Jonathan Cornell also says the FSA is pursuing the right course of action.

He says: “We can wave our fists at the FSA for destroying the broker industry but is it looking at the bigger picture?”

Cornell says although any restrictions on lending will be keenly felt by mortgage brokers, the FSA’s actions should ensure that the indus-try will at least be around in future.

He says: “It knows it needs to drive out fraud. For the small guy that will make life more difficult and that’s sad. But that’s life, the FSA is simply making changes to ensure the industry’s longevity.”

Cornell says that banning products such as fasttrack loans is an acknowledgement that these products are prone to fraudulent abuse.

He says these products may not be being abused right now, with tougher lending targets and more scrutiny from lenders, but they have proved to be open to misuse when the mortgage market is booming.

Cornell says: “The FSA is saying that some products might be light grey now but as the market improves, they will turn dark grey and then eventually black. We just need to get to grips with that.”

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