Lenders’ strategy of aiming for volume lending over margins helped to encouraged fraud in the mortgage market, according to Bob Ferguson, head of financial crime policy and intelligence at the UK’s FSA.

He made the comments at the recent Manchester Mortgage Business Expo saying that the last few years have seen lenders put an increased focus on volumes over quality, which helped to fraud easier. Ferguson stated: “In such an environment of easy credit, with lenders telling BDMs to get out there and bring in the business, they helped to create a sector that fraudsters gravitate toward.”

Mortgage brokers in the audience added that the policy of fast-tracking applications (where the lender doesn’t check income details) had also made it easier for criminals to take advantage of the system.

But Ferguson suggested that the recent turn toward quality business instead of volumes, as a result of the credit crunch could help cut fraud in the future. “The opportunity for fraud is shrinking with the size of the market,” he claimed. “Lenders passion for prudence is making life harder for the professional fraudster.”

The comments come at a time when mortgage fraud is considered a top priority by the regulator. The Financial Services Authority, and by the police. In March The City of London Police announced plans to arm itself with 50 new officers in order to fight an expected increase in mortgage fraud. This new fraud squad might initially focus solely on mortgages, which a recent police chief report claimed accounts for up to £700m a year in scams and has links to organised crime.

However Ferguson said the figures were overblown, claiming there was duplicate information in the report. He said: “I believe that significant crossover of data means the real figure is closer to £400m - which is still of course very serious.”

One of the police squad’s tasks will be to coordinate investigations from around the country and work with the FSA to crack down on fraud. It has a remit to pay particular attention to the discrepancy between property valuations and their actual values, especially in new build flats and commercial property.
New build valuations have come under fire in the last few years and a number of buy-to-let lenders now refuse to lend on such properties over fears of over-valuations.

Ferguson pointed out that the most important distinction to make with fraudsters is between the amateur one-off opportunists and those repeat offenders who are highly organised. “Clearly we need to spend more time worrying about the organised players than the amateurs, he stated.”These fraud rings need the participation of professionals, whether they are brokers, valuers or solicitors. If you are trying to create fictitious valuations or a false paper trial inevitably somewhere along the line there is a dishonest professional.”

The FSA has stated it is going to get tougher on fraud and is introducing a raft of new measures. This includes revitalising its Information From Lenders Project to incorporate more than the 35 lenders currently involved. The scheme encourages lenders to share suspected or proven fraud cases with the FSA.

The regulator also intends to undertake statistical analysis on arrears and repossessions and plans to build a mortgage fraud database that will make it easier to analyse its material.

Lending Central