The association of short term lenders
Fraud - Who is to blame?
The level of fraud in the last six years has increased exponentially. But before you can work on ways to decrease fraud you need to first ask yourself who is responsible?
The first question to address is ‘what constitutes fraud?’ Many borrowers will be surprised to learn that any deliberate misstatement or omission in their application for finance is considered fraud. In the years running up to 2007 it became common practise, especially in self cert mortgages, for applicants to “exaggerate” their income. This is fraud by the borrower and, if implicated in the process, also by the mortgage broker.
The lender is entitled to expect that the applicant provides them with honest and accurate details regarding their income. Now though, it is almost seen as socially acceptable to lie on a mortgage application form if this increases the possibility of the borrower obtaining a higher mortgage advance.
In recent years, the FSA have focused their attention on the mortgage brokers and financial advisors who have been known to encourage applicants to put down bogus income figures in order to get a deal through the lender.
At the other end of the scale are the criminal organisations that focus on defrauding the lender by whatever means possible. An example of this is ID fraud, where the fraudster attempts to secure a mortgage against an unencumbered property that someone else owns. Recently this type of ID fraud was attempted against Masthaven. Two individuals, using fake passports, attempted to borrow £1.5m against a £5m property in West London that they did not own. Fortunately for Masthaven, one of our eagled eyed underwriters spotted inconsistencies in their story and notified the police. This got passed to the fraud team who subsequently informed us that the passport submitted to Masthaven was in fact that of a deceased nine year old boy who had passed away many years ago.
Due to the fraudsters not being aware that they had been rumbled, at the request of the police, we arranged a face to face meeting with these individuals. This meeting took place at a hotel in London attended by myself and a detective who was masquerading as my personal assistant. In wait at the hotel were half a dozen undercover policemen.
At a time when there is a greater need than ever for collaboration and reaching consensus when dealing with the regulators and authorities, it is important that the astl is able to claim the highest possible level of representation. Here again we hope this newsletter will help pass on the message to all members of the short term lending industry, to join forces through our trade body and collaborate to reach a majority opinion in dealings with the regulators and the financial community that supports the industry.
These two individuals arrived in full Arab dress and, as soon as they indentified themselves to me, were arrested. Who says life running a bridging company is not exciting! The question of who is to blame for mortgage fraud is being asked not just by the lenders but also by the police, SOCA, the FSA and other government bodies.
Perhaps it is the lender at fault for allowing self certification? Should they have expected a significant number of people to lie on their application form? Perhaps the Lenders themselves are implicit in this fraud. Some have argued that the main reason Lenders introduced self cert mortgages was because they needed to get around FSA requirements in order to increase the amount they could lend.My view, after having spent many years at the coal face, is that a number of different groups need to hold up their hands and adopt a certain level of responsibility. The Lenders should have known that since the number of self cert mortgages had reached such a high level, it was unrealistic to believe that none of these would be fraudulent.
Mortgage advisors also have to take a share of the blame. Too many of them actively encouraged borrowers to insert bogus income figures.
Lastly, the group that is in my opinion the most responsible for the significant increase in fraudulent applications is the applicants themselves. Certain government bodies will not even consider the possibility that the borrower could be responsible. But most borrowers are not naive, financially illiterate people. They actually knew what they were doing when they submitted fraudulent information to the lenders.
The reason they did this was simply down to the fact that they wanted a larger mortgage than the true level which their income could support. Therefore, in order to be able to afford an expensive property, they decided to mislead the lender about their income.By Andrew Bloom, Director of Masthaven.