A government report has highlighted the risk of fraudulent solicitors, urging those in the mortgage industry to share information to prevent fraud.
According to the report issued last week by the National Fraud Authority (NFA) – titled Working Together to Stop Mortgage Fraud – almost £144 billion was loaned in mortgages last year with mortgage fraud costing the industry £1 billion a year.
The research published analyses corruption amongst both solicitors and brokers, warning that whilst the FSA’s “target enforcement action” against brokers may have led to an apparent decline in corruption, this doesn’t necessarily mean there are fewer corrupt intermediaries, rather they’re being caught before their mortgage deals go through.
What’s more, the report goes on to warn that whilst the “impact of intermediaries facilitating mortgage fraud appears to decline”, this has been matched by a “growth in fraud or suspected fraud involving solicitors”.
Richard Deacon of Masthaven Bridging Finance said: “It’s up to the lender to spot fraudulent solicitors as the client will never know, and generally, nor will the broker. Also, brokers often don’t know how to deal with corrupt solicitors even if they do spot them.
“It’s the smaller lending firms who are most susceptible as they don’t have their own in house legal teams. Those that come from a purely finance background, and not a legal background, must take even greater care.”
According to the research, when lenders do spot malpractice and report it to the police, the follow up measures are insufficient.
The report states: “Lenders in particular remain concerned about the police response to mortgage fraud, especially outside of London.
“There is a clear perception among lenders that many police forces will not resource mortgage fraud investigations as these are not seen to be a priority.”
HMRC have taken new measures to tackle the problem. In January 2007, a pilot scheme was introduced that gave lenders the opportunity to put forward any suspicious documents they needed verifying.
Under the scheme, lenders, after completing their own checks, were able to refer the documents and their suspicions to HMRC. The scheme is currently suspended whilst HMRC review the results.
According to the Council of Mortgage Lenders (CML), whilst it was running, the scheme prevented attempted frauds worth a total of over £111 million.
NFA Chief Executive, Dr Bernard Herdan, said: “Over the last year the collective understanding of the threat from both organised and first-party mortgage fraud has improved significantly.
“There is now also a clear recognition across a wide range of stakeholders that mortgage fraud is a shared problem that requires a combined response.”
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