Lenders Need to be Vigilant About Mortgage Fraud.

by Mark Johnston

Lenders Need to be Vigilant About Mortgage Fraud.

It appears that mortgage fraud remains a current issue with increasing levels of sophistication and innovation from fraudsters.

Experian, the global credit information group, latest fraud index revealed that attempted mortgage fraud in the third quarter of 2012 was up 6 per cent on the same period in 2011 with 38 in every 10,000 applications deemed fraudulent. This is compared to 36 in every 10,000 12 months ago.

Mortgage fraud costs the industry approximately £1 billion a year; therefore it is important that all lenders remain vigilant.

The British Bankers’ Association (BBA) and the Council of Mortgage Lenders (CML) define two categories of mortgage fraud in their joint best practice notes:

• Mortgage fraud for property – this is usually committed by an individual

to obtain a mortgage on a property they would not otherwise be able to

purchase through, for example, exaggerating their income, or providing false

employment details.

• Mortgage fraud for profit – this is usually perpetrated by a ‘fraud ring’

involving more than one individual. It can have links to serious organised crime.

One particular lender said it gets around 1500 applications a week, of which 12 to 15 per cent are fraudulent, mostly in the buy to let market.

Nick Mothershaw, director of identity  and  fraud services at Experian in the UK and Ireland, said that “almost 90 per cent of mortgage fraud tended to originate from genuine individuals misrepresenting their financial situations such as employment statuses and hiding adverse credit”.

 Therefore income verification is absolutely crucial to reduce the risk of fraud and bad debt risk as it is one of the most likely pieces of information that will be inaccurate on an application.

 Recent analysis of declared incomes on new credit applications identified that approximately 40 per cent of borrowers had overstated their income by £2,000 or more.

Some industry experts suggest that the majority of providers in the mortgage market already follow best practice in collecting and reviewing income data. But they may not be taking all the steps necessary to verify the information they are receiving.

In light of this these industry experts believe that there is every chance that the incidence of first party fraud could increase in 2013 and beyond. This maybe due to tougher rules for the mortgage market which are set to come in to force in 2014.

Experian, a global credit information group, has predicted that mortgage fraud is set to surge this year bringing the number of people fraudulently trying to obtain home loans to its highest levels since 2009.

New research predicts that 43 out of every 10,000 mortgage application will be fraudulent.

Laurence Hamilton, marketing & performance director of Equifax added “it is important that a desire for market growth does not come at the cost of higher levels of fraud.”

In conclusion lenders must stay vigilant and apply the strongest possible systems and controls to aid prevention of mortgage fraud.



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