The Big Fraud Fight - Lenders' vetting measures

The Big Fraud Fight - Lenders' vetting measures



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With mortgage fraud estimated to cost the UK economy £1 billion a year, according to the National Fraud Authority, it is important to ensure that all lenders’ procedures and vetting measures are consistently in check, particularly for those lenders who outsource their professional services regularly.

In light of an increasing number of lenders entering the short-term lending sector and the FSA keeping a close eye on any poor practice, are the systems and controls in place to detect and prevent mortgage fraud robust enough in the industry?

B&C delved into the sector to take a look at how some of the bridging lenders mitigate fraud and how they vet the solicitors and valuers that they work with.

Lenders are being extremely vigilant when looking at how vulnerable their own systems and controls could potentially be and in what places they can be improved.

The FSA are also keen to crack down on poor practices and in December 2011, they published their final guide, entitled 

Financial crime: a guide for firms. This provides guidance to firms on steps they can take to reduce their financial crime risk and is designed to help firms adopt a more effective, risk-based and outcomes-focused approach to mitigating financial crime risk, which includes examples of good and poor practice.

Alan Cleary, Managing Director of 

Precise Mortgages

, told B&C how they have made substantial investments in ensuring that they mitigate fraud and use both automated systems and human intervention.

Alan explained: “We are members of National Hunter, we use Experian Detect and just this month we have implemented a new national system called SIRA which is the leading fraud prevention and detection solution from Synectics Solutions. These systems actively search and cross reference data from all lender members and multiple government agencies for any indications of fraud.  In addition, we have a team of people whose specific roles are to identify and investigate potential fraud as well as money laundering and the identification of Politically Exposed People (PEP).

“Precise Mortgages have chosen the solicitors we deal with very carefully and have carried out due diligence to ensure that we mitigate our risk to solicitor fraud. We recently launched our Joint Legal Representation service as this not only slashes costs for the borrower and reduces time to release of funds but also protects us from mortgage fraud. Our main solicitor for bridging loans is Goldsmith Williams and Your Conveyancer for Scottish loans.

Precise have a select panel of valuers for bridging loans: Colleys for nationwide coverage; Ord, Carmell and Kritzler, and De Villiers for high-end properties in the South East.

Steven Nicholas, Chief Executive at 

Tiuta Plc

, informed B&C that they operate a very intensive policy and practice in seeking to prevent the firm being used for mortgage fraud.

Steven said: “Put simply, the firm has three levels of attack on potential fraudulent loan applications. All of the firm’s staff are trained to identify potential fraud and refresher training takes place at least twice a year. The firm’s experienced underwriting team are very attuned to identifying potential fraud from their considerable experiences in the mortgage and loan industry and, as the first to review potential cases in depth, will carry out basic identity and credit checks. These will normally drive out any questions or concerns relating to the individuals involved either directly or indirectly with the case at an early stage.

“When the case looks as if it will go forward the firm undertakes electronic identity checks covering a range of sources using the widely used Veriphy Solutions Ltd system which is both speedy and cost effective. Prior to legal completion the firm’s in-house legal team will seek validated evidence of identity from the solicitors acting for the applicants in line with the formal guidance issued by the Joint Anti Money Laundering Steering Group (JAMLSG), which in turn represents the legal and current position as advised by the HM Treasury. This approach is supported by the FSA and the UK and EU legislation in relation to ID and Anti Money Laundering.”

Cheval Bridging Finance’s

 Finance Director, Gavin Diamond, said: “Naturally we have a very close working relationship with all the partners that we choose to work with.

“We use a small panel of solicitor firms, the same firms that we’ve used for many years. These firms are absolutely fundamental to our business and help us to deliver the necessary service levels. They are very much our right-hand men. They completely understand our requirements and how we operate.

“The same applies to our panel of valuers. We work with valuer firms that understand our requirements, from valuation methodology to service levels. Primarily, our valuation panel is managed by a panel manager which helps to achieve optimum turnaround times. We instruct all valuations carried out for us.

“There are specific criteria and requirements that firms that work with us are required to meet before they can be accepted on to our panel.”

Regentsmead Limited

 are also very careful with whom they do their legal and valuation work with. James Bloom, Chief Executive at Regentsmead, told B&C: “Unlike most lenders, we do not use large panel surveyors; we prefer to work with partners in smaller firms – a number of who we have known for 20 plus years. This way we know the standard they work to and they can work in a specific way tailored to our needs. The same applies to the legal work where we use two main firms we have known for 20 plus years.

“Our professionals are kept very busy by us and know they are there to protect us. They are extremely diligent and will go the extra mile for our clients because of our relationship with them.

“In all the years we have been lending we have never had cause to sue a professional working for us which is very unusual, but this is because we look carefully at everything ourselves and are very careful who we use.”

Bridging Finance Solutions

 also have a number of systematic checks in place: proof of identity, credit references and anti-money laundering checks are all routine procedures for every application.

Steve Barber, Managing Director at Bridging Finance Solutions, informed us: “These checks are complemented with thorough staff training and a common sense approach to all applications. For example, being on the lookout for inconsistencies in applications whereby the applicant’s details just ‘don’t add up’. Underwriting is both an art and a science.

With particular regard to solicitors and valuers, Steve further explains: “We have a panel of solicitors and valuers with whom we work on a regular basis.  Having worked with them over a number of years, we have built up a strong relationship, based on trust and mutual respect.  Fortunately the majority of our business is generated from existing satisfied customers and suppliers so our established panel works well and we have had limited exposure to fraud.

“Bridging Finance Solutions only use established RICS valuers based in the locality of the security property, with appropriate indemnity cover, and allow borrowers’ legals to be carried out by firms with two or more partners.”

Short-term lenders have extremely stringent processes when mitigating fraud. It seems that most lenders are advocates of the ‘Veriphy’ Solutions system, which carries out ID and other necessary background checks. When it comes to solicitors, checks are made with the Law Society.

Effective systems and controls can help lenders to detect, prevent and deter any financial crime from taking place not just in an application stage but by sharing information with the rest of the sector. Lenders are already collaborating together in terms of sharing information but there is more that could be done. The FSA have also highlighted that the responsibility for improving practices is in the hands of the lenders.

Giving 

evidence

 on the Mortgage Market Review at a Treasury Select Committee on Wednesday 14 March, Martin Wheatley, Managing Director of the Conduct Business Unit at the FSA, was asked by Teresa Pearce MP: “How much do you think your recommendations will reduce that [£1 billion worth of mortgage fraud carried out each year] fraud?”

Martin replied: “I think it should reduce it because the lenders themselves will have the responsibility. In the past they relied to a large degree on agents and third parties to carry this out. We are now putting the obligation back on to the lenders, and that should allow them to do better credit checking against potential fraud.”

Now more than ever, it seems that the trade bodies could help to take the lead here, not just by continuing to interact and inform lenders about what the best systems and controls are in mitigating fraud, but to come up with a way in which lenders within the sector can share and collaborate more with one another in sharing information and good practices for the future.

By Jason McGee-Abe

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