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the power hour

The Power Hour

mBe 2012: Power Hour: aiding and abetting

The Financial Services Authority is increasingly worried about mortgage fraud. This month we discuss what brokers can do to help beat fraud out of the system

FirstBuy, NewBuy, new build and MIG are all intended to give first-time buyers a step up on to the ladder. But are they really helping? Our panel discusses

Is mortgage broker fraud the real Issue, or Is the problem wIder than that? Robert Sinclair: The problem is fraud and it doesn’t matter where you draw the line. We have two types of scenarios. One is organised crime and the other is, in some people’s heads, helping people get what they’d like to have and they almost view it as a social help as opposed to it being a fraud. Many of these frauds perpetrated over the past few years are perhaps working out okay. Those soft frauds are rarely prosecuted or rarely seen as fraud. John Heron: I struggle with the term soft fraud quite honestly. It has in some fashion this view that it’s not as serious as hard fraud and it’s clearly not the case in any event. From a lenders’ perspective, our objective is to clearly get the lending decision right and if we’re not getting honest, clear and transparent information from customers then we can’t get it right. The problem with any level of soft fraud is that lenders’ trust less and less the information they are receiving and need to implement increasingly complex systems and processes in order to get to a decision. That can increase the cost and reduce the facility to customers. It’s a problem we’d like to see ended.

Is there a problem wIth lenders acceptIng what Is fraud and what Is not? what they would call bad debt? JH: Bad debt is clearly not short hand for fraud. Bad debt arises through essentially credit that’s gone wrong and fraud may lead to bad debt of course and you should have systems and processes in place that are designed to identify, track back and learn from what might have gone wrong in those circumstances. Without question lenders at times have been their own worst enemies by not operating processes that are testing enough in that initial underwriting phase but I hope much of that is behind us.

the fInancIal servIces authorIty publIshed a thematIc revIew on fraud earlIer thIs year and IdentIfIed scope sIgnIfIcant Improvement In how lenders manage relatIonshIps wIth brokers. how has thIs developed sInce the revIew was publIshed? David Geale: It’s an ongoing battle. In the thematic report we saw a number of improvements. The further that lenders

34 MORTGAGE INTRODUCER FEBRUARY 2012 34 mortgage introducer JANUARY 2012

ONLY 16% OF FIRST-TIME BUYERS AIM TO USE A MORTGAGE BROKER WHILE 44% GO TO THEIR LENDER DIRECTLY. WHAT CAN BROKERS DO TO RAISE AWARENESS OF THE VALUE THEY OFFER? Robert Sinclair: Most first-time buyers don’t know what brokers can do for them and they will automatically go to whoever holds their current account and that’s a challenge. We need to make consumers more aware of the options that are available in the marketplace. Should they find it difficult to get a mortgage from one or two lenders then they’ll think they are shut out of the market. We need to get the message out there that brokers can do everything a bank does and more but as an industry we’ve never had the budget to get that advertising campaign out there. Nigel Stockton: The majority of first-time buyers end up with a broker. So 44% go to their lender directly so to me 56% are doing something else. In Countrywide a third of our buyers were first-time buyers and they will use a broker. If the proposition is strong and there’s choice and convenience, which is what a broker offers over a bank, then

MBE 2012: Power Hour: A step up

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