lenders are in glorious isolation from one another. “There is a concern about data- sharing among the big players as well, which may worry what they’re getting out if they’re putting lots of data in. It’s viewed as a double edged sword, particularly when you bring data protection into the equation. There’s always a potential competitive disadvantage for businesses giving insight into their business streams.” Currently, the best data pool is the application data sharing system Hunter. This system throws up inconsistencies on applications for mortgages, credit cards or loans and alerts lenders about anomalies. What it does not do is view all of the parties involved in the mortgage application process – including solicitors, brokers and valuers – and assess anomalous patterns in their behaviour. Stewart says the challenge with persuading lenders to subscribe to this is building the business case for it in terms of return on capital. Part of the problem when trying to ascertain the level of fraud in the industry as a whole, is that so much of it is written off by lenders as bad debt. In many cases, the decision to write it off is made in good faith and the possibility of the bad debt being caused by fraudulent activity is simply missed.
freedom to Choose Coogan makes an interesting point which relates back to the recurring aggravation between lenders and brokers. “Part of the problem between lenders
and brokers and the frustration of not being told why an application is declined, is to do with manipulating income or similar to play the system; to try and get past the credit score. That’s part of the fraud which is problematic for lenders - people massaging applications to fit criteria.” While it’s the minority of brokers who would misuse the lender’s reasons for declining an application, Coogan’s point is a valid one.
“Intermediaries will typically inflate income to reduce the checks that an application is subject to – they’re trying to
avoid more detailed checking on the application by avoiding the credit scoring process throwing up any question marks.”
He acknowledges that fraud at the expense of lenders is a growing concern but that lenders have internal means to deal with the problems they face: “The extent to which you suffer fraud will focus your mind on how you deal with it going forward. And I think that as a consequence of the recession and falling house prices and the losses having to be provisioned against, the attitude to fraud has hardened.” AMI director Sinclair says there is no official evidence of lenders hushing up internal fraud but the regulator could do more to look at that within lenders. “It seems plausible that lenders are
reluctant to report fraud publically,” he says. “Some 80 intermediaries have been disciplined in last two and a half years by the FSA but not a single internal bank adviser. The question is why are there none behaving fraudulently on the inside? Is it just that they haven’t been reported publically?”
Michael Coogan acknowledges this, saying intermediaries have been banned by the FSA for bad behaviour but no branch-based advisers or branch business development managers have.
“An intermediary or a bank employee would have to do a huge number of cases to get the return a solicitor could get on very few,” he says. “The biggest frauds have been with solicitors walking away with money without there having been any transaction.” Alan Cleary, managing director of
Precise Mortgages, agrees with Coogan saying the most serious fraud hitting lenders’ balance sheets was the result of professional rings of fraudsters colluding between the broker, solicitor and surveyor to defraud lenders. He said lenders are unlikely to admit fraud publically because it could potentially attract more fraud and argues that the way forward is not information sharing, but restricting the number of partners on the lender panel.
Precise Mortgages currently deals with Shoosmiths and Goldsmith Williams on their solicitor panel, and Colleys exclusively on the surveyor panel. This is in the spirit of rebuilding direct relationships with business partners, knowing them and protecting oneself from unscrupulous operators in the wider market.
“Limiting the partners on our panel of solicitors and valuers breaks the fraud ring, on the lender’s terms because the lender chooses which professionals to work with,” he says. In essence, the strength of lender /
broker / solicitor and valuer relationships can foil fraudsters before they get off the ground.
Where does the buCk stop?
Getting the balance between freedom, fairness and responsibility is not easy. It’s a mammoth task in fact, but it seems that lenders, brokers and trade bodies accept that working together is likely to produce better outcomes for the mortgage market than working in isolation.
Even with the best of intentions though, working together has its problems in business just as it does in politics. There will be hurdles and indubitably, insurmountable conflicts of interest. As an industry we are more used to challenge and throwing down the gauntlet than to working together in practice.
Ultimately, business is about competition. The challenge is all important and the winner survives where the loser pales into the background. The question is: how do we balance competition and co-operation?
the ansWer? That’s something I can’t answer for certain. All I can say is that if we work together to reach solutions, they’ll suit all of us better than if we continue to stand on opposite sides of the field. It’s not going to be easy but it is necessary if the mortgage industry is to survive in a shape it’s comfortable with. n
mortgAge introducer JULY 2010 31
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