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Mortgage analysis: Is the industry losing the battle against fraud?

Fraud attempts are at their highest level since the onset of the financial crisis. Has the mortgage market has let its guard down?

Experian has published a report which finds the instances of attempted mortgage fraud reached record high levels over the course of last year.

The firm’s fraud report revealed attempts at passing fraudulent mortgage applications have more than doubled since 2006, from an average of 15 in every 10,000 cases to 38 in 2012.

Looking ahead, Experian expects fraudulent application attempts will rise to 43 in every 10,000 cases by the end of 2013.

Experian breaks down fraudulent activity into first party fraud and third party fraud. First party fraud refers to individuals submitting fraudulent applications either through intermediaries or direct to lenders. Third party fraud or identity fraud refers to the criminal use of another person’s identifying information to obtain a mortgage. In both cases, the fraud can be committed in collaboration with a professional who is involved at some stage in the process, or without the knowledge of anyone except the fraudster. 

The proportion of first-party versus third-party application fraud attempts remained broadly unchanged between 2011 and 2012, and represents an approximate 80/20 split. But looking ahead, Experian says third party fraud attempts are expected to increase.


It says: “Although often harder to spot, it is a combination of ID theft and/or collusion with professionals. It clearly reflects the vulnerabilities in ID validation and highlights the need for lenders to safeguard their position by using a known panel of solicitors, or using vigilant online document checking.”

Experian says the industry as a whole has taken steps towards improving this section of the market, which is evidenced by the number of brokers who have been fined, convicted or kicked off panels.

But if the findings are correct, mortgage fraud attempts are continuing to rise even in the face of the best efforts from all concerned parties. Are fraudsters becoming more inventive or is it simply that lenders and brokers are gradually losing their grip on the situation?

The Association of Mortgage Intermediaries chairman Patrick Bunton says lenders and brokers are working hard to combat fraud. 

He says: “The systems of controls for new business originated today bear very little resemblance to the systems of control in place at the peak of the market, pre-credit crunch. It is clear there are far more checks, diligence and deterrents in place.

“We work more closely with lenders now than we ever have and the degree of openness and communication between lenders and intermediaries is better than historically when there were very closed communication channels.”

John Charcol senior technical manager Ray Boulger says: “Some of the income fraud which was relatively easy to get away with a few years ago is now relatively difficult because lenders are being much more stringent. I would imagine the increase Experian has noted is down to more fraudulent applications being picked up.”

Boulger adds attempted fraud is more likely to succeed when there is a complicit third party involved, as it takes away what would otherwise be another point of scrutiny.

He says: “For a fraudulent application to be successful, it is much more likely to be in cases where you have some third party involvement, whether it is a broker, surveyor or a solicitor. The more opportunities you take away from third parties to influence things like who is doing the valuation, the more you reduce the opportunity for fraud attempts.

”This is probably the area where lenders need to be most careful.”

Boulger says one indicator of the industry’s willingness to tackle fraud is the widespread support for a register of mortgage brokers.

He says: “Everyone in the mortgage market, with the exception of the regulator, is a strong believer that individual registration should have been imposed a long time ago.”

The FSA originally argued in favour of a registration system, as part of the primary discussion on the mortgage market review, but was forced to announce in February 2012 that these plans have been delayed indefinitely.

Precise Mortgage managing director Alan Cleary says some parts of the mortgage market are more susceptible to fraudulent activity than others, such as the bridging market.

He says: “The bridging market is more open to fraud attempts and many of these lenders are just not sophisticated in their approach to tackling it. Another area which bears close attention comes in the form of people trying to circumvent the affordability rules by using buy-to-let and other products. Combating fraud is a daily battle that never stops.”

Any increase in the number of fraudulent applications will generate concern around an industry which has come under intense scrutiny since the onset of the credit crunch. But Xit2 managing director Mark Blackwell says the volume of mortgage business being written is increasing, which will naturally push up the proportion of fraud attemps. 

He says: “Overall transactions activity is on the increase; a byproduct of which will be more fraudulent application attempts.

“We do not want to scaremonger here and give the impression that the market is going AWOL in terms of control because I think lenders are making a great effort to get on top of this problem and send it the other way.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Run ALL applications first through E-VERIFY, the national database that employers use to match IDs with SS numbers and addresses for employment. No match? Off to the SS Office to rectify and update . . . no big deal . . . all a part of PREqualifying. None of this, “deal will fall through without a ‘rush’ job.”

  2. Fraud is the engine of the mortgage industry. To say the industry is battling it is hilarious. It welcomes it.

  3. I wonder if it is just the number of fraud cases are now being picked up, whereas pre 2007 these applications just went through the system.

    I remember the bad old days of fast track mortgages and self certified Liars loans that seem to be complete Jackanory.

    The real issue is how do those borrowers move on when their 5 year fixed deals @ 5.99% come to an end and they revert to 7.99% from the dodgy lenders. The market should hold its head in shame. bring on regulation for the mortgage market.

  4. @Roy Miles

    Bring on regulation. Indeed. But did you attend any of the FSA MMR presentations? If this is regulation of the mortgage market then no wonder there is fraud. I wouldn’t really call the intended regulation lax – rather hardy in evidence at all.
    Let mortgages be regulated in the same way as ‘investment’ business and if caught perpetrators should not only be fined (I suggest the fine equates to the whole value of the property concerned) but there should also be a mandatory and standard 5 year jail sentence. These sanctions should apply equally to the fraudster, the relevant person at the lender and also the intermediary (if there was one involved). Then watch mortgage fraud disappear.

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