The FSA recently outlined its thematic review of lenders’ systems and controls to detect and prevent mortgage fraud. The review involved five big lenders and 15 building societies and the findings helped reinforce many long-held views.
Much has been made about the involvement of mortgage brokers in fraudulent behaviour but little has been mentioned about how solicitors and valuers are a major contributory factor.
The Mortgage Fraud against Lenders report attempts to redress the balance by highlighting the involvement of solicitors. Indeed, one big lender considers solicitor fraud to be is greatest area of concern, with around half its mortgage fraud losses attributed to the action of solicitors. This has had a major impact on how lenders manage their legal panels. Changes are being made to reduce fraudulent behaviour.
The review establishes that lenders need to be more collaborative with the sharing of information within the industry, especially with the information from lenders scheme. The IFL scheme means lenders will share information, not only with the FSA and other lenders but also with the National Fraud Forum. Any mortgage intermediary involved, party to or suspected of fraudulent behaviour will be reported to the regulator, which could result in enforcement, fines or banning orders.
With this in mind, mortgage intermediaries must now take even more time to understand what constitutes fraudulent behaviour and how they can better train staff throughout their businesses.
Some lenders are good at sharing their experiences and understanding of mortgage fraud with key intermediaries. However, questions have been raised about the degree to which this information is filtered down to all staff in the business. This point has been raised by the FSA. Senior management understands mortgage fraud but less training takes place with middle managers and junior staff to help identify what is fraudulent behaviour.
Regular mortgage fraud training is the starting point for all mortgage intermediaries. This is an area where lenders can provide the material to assist. This information should be part of the staff induction and training manual, together with case studies and examples.
Knowing your client is an obvious statement but all too often mortgage intermediaries have bought or been referred a lead from a lead-generation company – and from there have done little or no due diligence on that client or his advisers.
Unfortunately, some clients are not who they first appear to be. This is why face-to-face meetings with clients to formalise their identification is so important. The key point is that if there is any doubt about the applicant, walk away.
With the FSA more determined than ever to keep the crooks out of finance, the mortgage industry has an opportunity to play its part. Lenders and intermediaries working closely together can help to put the trust back into the sector and reduce the losses the mortgage market has been experiencing.
John Malone is executive chairman at PMS