Mortgage Fraud

by Mark Johnston

If a borrower lies on a mortgage application form, even tiny white lies, it constitutes as mortgage fraud.

Fraud typically involves potential borrowers inflating their employment prospects or finances or not disclosing previous addresses in a bid to conceal an adverse credit history.

Therefore if a lender subsequently discovers any part of the application is false, not only can they demand immediate full payment of the outstanding debt but the borrower could also end up paying six figure fines.

While the economic conditions have reduced the levels of mortgage lending the problem of mortgage fraud has not gone away.

Mortgage fraud has climbed 14% during the fallout of the recession. This alarming rise comes despite banks tightening their lending criteria dramatically since the beginning of the credit crisis.

The incidence of mortgage fraud being uncovered is rising as stagnating house prices and the economic slowdown expose loans that have been obtained through falsified information.

Some experts have warned that many criminals view mortgage advisers as an ‘easy’ route to committing mortgage fraud. Financial service companies were also widely targeted, around 48 cases worth £172 million.

Mortgage fraud accounted for more than half of all fraud committed against the financial sector, some 21 mortgage fraud cases with a value of £96 million were reported.

Nick Mothershaw, the director of identity and fraud at Experian, said that “more than 90% of mortgage fraud tended to originate from genuine individuals misrepresenting their financial situations attempting to buy property that would normally be out of reach”.

There has been a 77% increase in fraud since the start of 2011, according to Experian, the credit agency. 166 cases of serious fraud were found in the first half of 2011, the highest number of cases in a 6month period in 22 years of history.

One such case involved an estate agent who was jailed for 6 years after attempting to pull off a £2 million mortgage fraud after stealing the identities of 2 home owners.

Hitesh patel, partner of KPMG forensic suggested that “the fact that increasing amounts of mortgage fraud are being prosecuted is cold comfort for the financial service industry. The trend remains upward and it could be some time before we see the peak”.

Robert Sinclair, director of the broker trade body, said “lenders have woken up to the threat of fraud, particularly given the pressure from the government to tackle the issue”.

The Financial Service Authority (FSA) has recently published its guide to financial crime which shows ‘good practice’ examples of how lenders can help to reduce the risk of mortgage fraud.

According to the Financial Service Authority (FSA) the guide is not a ‘checklist’ of things that all firms should do to keep up defences against financial crime, it is however a ‘list of steps’ they can take to reduce their own risk.

Mortgage fraud in the UK is a growing billion pound illegal business with fraudsters resorting to innovation and inventiveness, targeting any perceived weakness in the system.

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