With headlines appearing every week about the latest mortgage fraud, any reader of the news might be forgiven for thinking that property finance was a risky prospect.
However, it is increasingly clear that closely-monitored specialist sectors within the industry, including bridging, are taking steps towards winning the war on fraud.
Foremost among these are measures taken by the FSA and the powers that planned for the financial industry’s new regulator, the Financial Conduct Authority (FCA).
In its recent publication ‘Journey to the FCA’, a series of measures to protect financial consumers were outlined, including the banning of misleading information supplied by firms, an increase in the number of supervisors on hand to maintain industry standards and the introduction of harsher penalties for more enforcement cases.
Speaking at this year’s London MBE, Nausicaa Deflas – the FSA’s Head of Mortgage and General Insurance Supervision – told attendees about the FCA’s future supervisory role. Within her speech, she identified both the bridging and buy-to-let (BTL) product markets as potentially hazardous, both for vulnerable consumers and fraudsters looking to exploit the system.
She told attendees: “We found that although lenders understood the risks involved [in this industry], their controls needed to be strengthened to guard against this. So in line with our supervisory focus group, we are aiming to improve controls and reduce the risk of fraudulent mortgage applications being written.
“Again this is an area we will continue to monitor going forward, which remains one of the more problematic ones when regarding mortgage fraud.”
A difference between the mainstream lenders and the smaller, fringe lenders needs to be distinguished when looking at bridging and buy-to-let, as it is these latter lenders that do not adhere to industry's codes of conduct or best practice. There is growing concern if the regulators impose a one-size-fits-all solution that damages the sector as a whole of not making this distinction.
What exactly can be done, therefore, to lessen the impact of fraud and create a safer lending environment for both trade professionals and consumers?
Also speaking at the MBE, Gemma Harle, Managing Director of distributor and servicer TenetLime, described the need for a ‘Quality Agenda’, which she defined as a series of improvements to the running of the financial industry that stepped beyond regulation.
Speaking about the potential role of brokers, Gemma said: “Intermediaries can embrace and focus on positive outcomes for both their business and their customers. It’s imperative that you know your client inside-out and, crucially, beyond regulation and a lender’s requirements.”
“At the same time, when passing on information, it’s crucial that you only provide accurate, substantiated data whether it is needed or not. Things that you don’t think matter often end up mattering!”
From a lender’s perspective, Gemma highlighted the idea of a ‘know-your-broker’ scheme, in which lenders could be expected to demonstrate intimate knowledge of their intermediaries, their business and their practices. Furthermore, she outlined several improvements to lenders’ processes which can minimise the potential impact of fraud. Among these are changes in funder’s formal metrics, used to mathematically asses the financial suitability of a proposed client’s deal, a promise to invest in system enhancements and accuracy and an alignment of a lender’s objectives and the incentives that they offer.
In short, mere adherence to the FSA’s and other regulation might not be all that is needed to prevent fraudulent activity.
Despite the need for these measures, however, it appears that the industry has significantly tightened possible avenues for fraudulent activity.
The MBE also heard from PMS’ Executive Chairman John Malone, who is also a member of the Association of Mortgage Intermediary’s fraud group.
Even though fraudulent activity in the UK now equates to £73 billion of lost funds (up from £38 billion in 2011), fraud in the mortgage market only accounts for £0.5 billion – half of 2011’s total and a tenth of the estimated loss from 2007.
In his presentation, John argued for a set of measures that could be put in place to reduce the industry’s liability for mortgage fraud.
Similarly to Gemma, he also put forward a case for vigilance from both ends of any mortgage transaction, and said: “Lenders are being told to know your broker, but brokers also need to be reporting poor lender behaviour where they have concerns over quality and practices.”
He broadly identified awareness, prevention and enforcement as the main area worth concentrating on to maintain a tight limit on fraudulent activity.
Awareness initiatives such as the National Fraud Forum, which has served to raise the profile of all aspects of fraud, were invaluable for both lenders and intermediaries to recognise suspicious activity before it had a chance to develop into criminal action.
He added: “At any point in the lending process, you cannot necessarily believe perfectly-produced documents, as they can
easily be fraudulent in origin.”
John concluded that following such measures, and the impact of the FSA and FCA’s ‘Action Fraud’ initiative, the industry was beginning to shake off prolific fraudsters.
In the end, however, he conceded that fraud will always be an innate danger of the financial services industry. He said: “You will never beat the fraudster. He is cleverer than all the systems which can be provided. What you can do is to slow it down and understand how it is coming to pass."
By Laurence Havelock
1 Comments
Salam Ansari
The whole issue of mortgage fraud needs to be looked at realistically! How can a broker in one meeting or two get to know a client as being commented? Not all clients like to discuss personal issues or matters and are not comfortble giving more informationn than necessary!In property transactions there are many involvements from family at times, each property is different and each tansaction is different! Regulations should give a guide line and there should be prudent lending rather than straight jacket criteria which will slow down the market and hurt the economy! Most people work hard to acquire a property and have all intention of maintaining a mortgage? Let it be a commercial issue rather than complicated by all sorts of angles, which have made the cost of getting finance exhorbitant. Lots of rethinking needs to be done!