The fight against fraud

With several high-profile cases recently, what is being done to combat mortgage fraud? Barney McCarthy investigates

Industry regulator The Financial Services Authority (FSA) has stepped up its fight against mortgage fraud and says it is aware of the social harm caused by such activity, as well as its possible links to other forms of criminality such as money laundering and people trafficking.

On 22 July it wrote to key industry trade bodies including the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association, the Association of Mortgage Intermediaries and the Building Societies Association to urge further co-operation in its attempts to crack down and revealed its plans to visit 200 intermediaries to asses their financial crimes systems and controls.

Phillip Robinson, the FSA’s financial crime sector leader, says in the letter: “The FSA is working on live mortgage fraud inquiries with national agencies and more than a dozen regional police forces across the UK and we continue to exchange intelligence with City of London Police, the National Lead Force for fraud. We intend to keep lenders’ defences against mortgage fraud under review, revisiting the question of whether thematic work is necessary early next year. We are likely to take particular note of cases where weaknesses in due diligence and customer checks – or in outsourced relationships with third parties – may have contributed to a heightened mortgage fraud risk.”

The National Fraud Strategic Authority (NFSA) is currently in development and will become operational in October 2008. Sandra Quinn, interim chief executive of the fledgling organisation, says: “While the amount of mortgage fraud remains a very small percentage of the overall mortgage market, it is important that it is stamped out to give homeowners and investors confidence in this key area of the economy. The FSA’s work will feed into a wider, national mortgage fraud action plan, developed by the NFSA in conjunction with the mortgage community.”

Cracking down

The FSA has regulated the mortgage industry since 2004 and after a relatively low-key start to its stewardship, it has started to get tough with those not playing by the rules. It has banned 17 individuals this year alone for malpractice, including a record £129,000 fine for one such broker. But what exactly does fraud constitute and what are mortgage brokers doing wrong?

Mike Fitzgerald, sales director of Essex-based broker Brentchase Financial Services, says there are different classifications of mortgage fraud. “You have your Premier League, serious fraud which can involve whole new build developments and then lesser crimes, second division fraud if you like, where a bonus has been wrongly categorised,” he says. “This isn’t too suggest that it is less important though and it is still easy for those who want to bend the rules to do so.”

In the case of Sadia Nasir, the broker on the receiving end of the fine, she had submitted seven mortgage applications containing false information about her clients’ employment and earnings, supported by falsified documents including payslips, financial statements and accountant’s certificates. Nasir had also entered her own bank details on mortgage applications for clients.

Warning signs

So what should you be wary of as a consumer? Nickie Aiken, spokesperson for lender Bradford & Bingley, says: “If a broker is promising the earth, it is natural to be wary. You should pay attention to what you sign though as you will also be responsible for any misinformation and you can’t just plead ignorance.”

Fitzgerald adds that consumer should act on recommendations if possible and ensure that brokers they use are regulated by the FSA, even though, in theory, unregulated brokers can’t practice. “It may also pay to use an independent broker rather than going direct to a lender as they are likely to be more experienced and more versed in what exactly is required in regulatory terms.”

While mortgage fraud has hit the headlines recently, it still represents a drop in the ocean as Quinn says, so there is no need to be unduly concerned or wary of seeking mortgage advice. However, as with any financial service, be vigilant and ask for a second opinion if you feel that something may not be above board.