application to begin with other than to defraud the bank or the lender. The other soft ones are people who are


trying to get into properties or someone in the origination cycle trying to get them into the property when they know they can’t or shouldn’t. Frankly it’s the latter which end up with poor customer outcomes. They get property they can’t afford and then bad things happen. AS: If you look at the Ian McGarry case that Richard worked on, it was £36m that went to Pakistan or Dubai. That was just a system to defraud and who knows what that money was used for whether it was terrorism or whatever, but they’ve never found it have they? Richard Nunn: We’re still looking for it but it’s unlikely that we’re going to get much of it back.


from your point of view, do you think the industry is Learning about how to detect fraud from cases Like that, which have occurred in the past? RN: I think certainly when we first started out the case there was some unwillingness from some lenders to acknowledge that these were fraud losses rather than credit losses. In the industry now there’s more mortgage fraud being reported and CIFAS is producing work on that. I read the Thematic Review and I don’t think it’s quite as black and white as that. Again there are some lenders which


have improved their governance but there are others that don’t even have a definition for mortgage fraud and they haven’t reviewed their back books and they have no idea of the risks they’re exposed to. One example is that we had a lender who had a loan director who they knew was responsible for introducing serious


fraudulent business. They waved him on with a compromise agreement and he went on to another bank and did exactly the same thing. Now that for me is pretty surprising


behaviour. Certainly the vogue is for reporting fraud but that’s where the market is currently and we don’t know what will happen when the property market changes and the boot’s on the other foot. Then we’ll really see whether the risk departments have gained power or whether it was just a vogue. AS: You’re right it’s cyclical and you’re going to see it move the other way. If the likes of Chelsea and Cheshire had known they were going to get defrauded to such a large extent, they would have invested into systems to detect that. Hindsight’s a wonderful thing isn’t it? JB: It’s interesting to ask whether lenders are learning from the past because we had a meeting with our mortgage lenders and this was one question we posed them. In parallel with that was: “How do you actually prove something is a fraud?” Their response was: “Well there’s no


point in us sharing this information because of a fraud that happened two or three years ago. It’s gone, done and dusted.” But we said it is still worth sharing that


data because other lenders may still have frauds on their own books and with that data you can do a retrospective analysis of what went wrong and use that moving forward. That did seem to some of them a rather


new, bizarre concept but others were more receptive. AS: Isn’t that what we’ve been doing with credit risk for many years and the credit agencies? JSR: It’s true, what I find odd is the lack of systems to share data across in intelligent ways. So we designed a system so you


can communicate in an organised way between a surveyor and a lender or lender to lender. But there’s a real concern about it because as soon as you flag up you’re worried to a surveyor, they’re worried about naming names in writing in case a defamation case suddenly pops up from somewhere. Getting a systematic way of sharing data in place is more challenging.


is there stiLL a taboo about mortgage fraud? JSR: I think with lenders it’s still a major taboo. Part of the problem is that it’s so difficult for the banks to come up with a number it continues to be foggy. Grant Sidley: That’s common across other private sectors and also with government itself. John Mawdsley: It’s human nature as well. Nobody wants to wash their dirty washing in public and nobody wants to admit: “Hey, we cocked up here and our training isn’t good and our systems are inadequate.” Nobody wants to say that. It’s only the


regulator who can step in and say “you must and you will” to enable that sort of data to come together. JMal: I think the government will step in around the National Fraud Forum and there are regular meetings between the Serious Organised Crime Agency and various people within government and I think somewhere along the line there will be change. Fraud is costing this country an estimated £38bn. Mortgage fraud is anywhere between £1bn to £5bn. We don’t really know what the figure is but what we do know is that it’s significant. BY: The good news in that the FSA has now joined CIFAS. They’re using it in a limited fashion at the moment but when people apply for registration, should they find anyone who has committed any type of fraud, they will be sharing that with all


Join the debate @mortgagechat mortgage introducer AUGUST 2011 39


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