The worrying growth of mortgage fraud

by John Fitzsimons on 06 August 2009  |  4 comments
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The FSA, for once, is doing the right thing by being tough on those found to be breaking the rules.

The FSA comes in for a lot of criticism, and rightly so.

The last few years have demonstrated how badly it took its eye off the ball, preferring to concentrate on initiatives like Treating Customers Fairly rather than really monitoring what some of the firms under its command were up to.

However, now and again, it does something right and its crackdown on mortgage fraud is a cause for optimism.

Over the last three years, the regulator has banned more than 60 mortgage brokers for committing mortgage fraud. Now that might not sound like a lot, but the vast, vast majority of bannings have taken place in the last 18 months or so.

I have always been a champion of independent financial advice, and I always will be. But, as with any industry, the mortgage broker sector has its fair share of bad eggs. And the FSA's investigations have revealed just what those bad eggs have been up to.

In most cases, the FSA has reported the broker knowingly submitted false information, or even falsified documentation to support spurious claims about the applicant's income.

Just last week, in the most recent banning, the broker in question was found to have submitted at least three applications which he knew included lies.

The scale of the mortgage fraud problem has only really emerged since the onset of the credit crunch, and while the figures remain relatively small compared to other forms of fraud, it's a significant enough area for the National Fraud Strategic Authority (now simply the National Fraud Authority) to have devoted most of its first year in operation to the matter.

According to the KPMG Fraud Barometer, 18 cases of mortgage fraud - with a combined value of £24m - were brought to the courts in the first half of 2009. That's compared to 25 cases worth £36m in the whole of 2008.

The test now is in ensuring that the guilty parties are then prosecuted - fraud is, after all, against the law, and prohibition from advising on regulated financial matters is not nearly punishment enough.

And it goes without saying that should your mortgage adviser ever suggest the odd fib on your application, you should not only refuse, but also report them to the authorities. Brokers, as a whole, do a great job, but their reputation is tarnished by some of the dodgier individuals still involved in the industry.

It's up to all of us to make sure they are flushed out.