Mortgage fraud


2013 Predictions: Mortgage Fraud


The industry has already put some clear barriers in the way of potential fraudsters. Mark Milner looks at the obstacles ahead


January is a time for fresh starts, resolutions and mild reflections of what the previous year has delivered. It is also a great time to make some predictions as to what lies ahead for us over the coming months.


I believe there are three specific areas


that are likely to feature in the headlines: 1. Misrepresentation of financial or personal details


2. Mortgage product misuse 3. Property clubs


The latest Fraud Index report as published by Experian at the end of 2012 suggested we will witness ‘record levels’ of mortgage fraud in 2013. In their view this will be predominantly driven by individuals misrepresenting their financial position, such as non-disclosure of adverse credit, falsified employment status information or other similar scenarios.


The industry has already put some clear obstacles in the way of individuals attempting to defraud in this way. The HMRC’s income verification scheme is one such example, as it enables lenders to independently verify the income details of applicants they suspect are attempting to commit fraud. We do believe that this will however continue to be a significant threat for the industry as we move through the year, and while additional verification checks are being implemented, attempts will be made by desperate individuals to distort the application process so to obtain the


funds they are wanting to access. Another aspect of mortgage risk that we believe will be an ongoing threat to market is product misuse. This includes applying for buy-to-let mortgages even though the applicant is intending to personally live in the property upon completion, with no intention of letting the home to tenants. We foresee that this type of mortgage


product abuse will continue to be a prominent issue over the coming year as individuals look to circumvent the stringent income verification checks that are in place for residential mortgages. In tough economic conditions, it is not uncommon to read about organisations that claim to sell properties below market value transactions, where the true market value has been inflated and the actual value of the transaction masked. Investors are tempted with the promise of making an impressive income via the purchase of properties without the need for a deposit and sometimes even with an incentive of generating immediate ‘cash back’ on the transaction. Such clubs promote a range of advantages, for example some suggest that once a property has been purchased below the market value, the buyer can then immediately remortgage at the higher market value and extract the difference.


Several years ago, property clubs were


centred around new build properties, however today, we are seeing clubs emerging that concentrate instead on


36 MORTGAGE INTRODUCER JANUARY 2013


repossessed properties or distressed assets. These are then sold to investors as a below market value property and quickly ‘flipped’ to release equity. Property clubs are not regulated and


they are a growing concern for mortgage lenders. The key therefore is to ensure appropriate due diligence checks are in place to track market valuations against true comparable data.


This can be done in a number of ways, including analysing historic valuation reports and current AVM-based data, which will ensure any suspicious characteristics are identified prior to the application being progressed. There is little doubt that the market in general is likely to remain fairly static over the coming year – both on a transactional and valuation perspective – and taking this into consideration, we urge the lending community to be extra vigilant towards the ever-present risks associated with mortgage applications, as both professional organised groups and unscrupulous individuals look at accessing funds by whatever means possible. We encourage financial professionals and risk teams to ensure that risk management IT systems are up to date and monitoring for such cases now. That way, we are all as prepared as possible for the onset of 2013 and whatever the year ahead may bring.


Mark Milner is managing director of Landmark UK Property, Quest UK


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