B&B could face mortgage fraud losses of £388m
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Bradford & Bingley, the bank nationalised at the height of the financial crisis, has revealed it is setting aside £388.4m for potential losses on its mortgage book relating to fraud and professional negligence.
B&B has released its annual results today for the year to December 31 2009 which reveal that overall the lender has made a massive £884.1m provision for mortgage losses, an 89% increase from the £467.7m it set aside for 2008.
The lender carried out a review of its mortgage book last year to uncover any suspected instances of mortgage fraud and professional negligence.
B&B says that it is confident that that the majority of these cases have now been identified and have been accounted for in the £388.4m set aside to cover any potential losses.
In January 2009 the lender introduced a waiver on its early repayment charges in a bid to encourage its borrowers to redeem their mortgage or remortgage elsewhere.
This has helped reduce its outstanding lending balances to £39bn, from £41.8bn in 2008.
The mortgage redemption rate fell from 10.6% in 2008 to to 6% last year, which B&B says reflects the low interest rate environment and the lack of available mortgages.
The total number of cases three months or more in arrears stands at 5.54% of mortgage accounts , compared to 4.60% as at the end of 2008 and 5.88% as at the end of June 2009.
B&B made a pre-tax loss of £196m for 2009, £71m lower than the bank forecast and £82m lower than the comparable loss of £278.0m in 2008.
The lender made a one-off £216.3m gain when it sold its retail deposit business to Abbey, part of Santander, and accounted for a £196m ’adjustment’ in line with B&B’s expectation that its mortgage terms will now be longer than previously thought.
Richard Banks, managing director of B&B, says: “We have made substantial progress against our business objectives in 2009 and met all of the financial goals in our agreed business plan.
“We have completed our restructure to create an organisation that is fit for purpose to deliver a high quality service to our customers whilst reducing costs, minimising losses and delivering value to the taxpayer.”
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Readers' comments (10)
Grey Haired Undwerwriter | 19 Mar 2010 11:52 am
The consequences of securitisation perhaps?
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Anonymous | 19 Mar 2010 12:11 pm
Did they carry out any checks on these fraudulent applications at all???
Will any (senior) heads roll as a result?
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Anonymous | 19 Mar 2010 12:54 pm
No surprises there then, I wonder where that fraudulent business came from and if the BBG group/FSA will name and shame or maybe even investigate those sources. It's a shame if they don't as they would surely have enough evidence to take action against these people.
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Geoff Laird | 19 Mar 2010 1:32 pm
I cant stop laughing at this announcement, with the ultra lax lending undertaken by Mortgage Express in relation to Buy to Let is it any surprise that the level of fraud has amounted to such a figure.
I think the former Managing Director Mr Dawson , much revered by many of the large brokerages judging from their attendance on the MX corporate hospitality tables, should hang his head in shame for supervising over a regime that pursued its quest for a greater share of the mortgage market disregarding the necessity to make prudent underwriting checks on applications received.
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Anonymous | 19 Mar 2010 2:02 pm
I agree completely with the sentiments expressed but are these frauds restricted to just Mortgage Express or other major lenders who chose not to ask too many questions on applications received during the halcyon period of the early 2000's.
I also am wondering if the brokers involved in the introduction of these mortgage applications will be named and shamed or at the very least referred to the FSA /Network for further investigation into other mortgage submissions made to other lenders who themselves may not be aware that they have lent monies on properties where there are potential irregularities
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Anonymous | 19 Mar 2010 2:05 pm
If B&B has knowledge of the sources of this malfeasance, surely they should make that knowledge available to the police and the FSA so these bad eggs can be weeded out in one push. I for one are sick and tired of the FSA terrorising us with their "one a week fine and disbarment cammpaign" If all lenders passed on their suspicions to the FSA and police immediately they discovered fraud, this industry could be cleaned up in six months. I challenge the FSA to encourage lenders (with menaces, if that's what it takes)to disclose their information. There would be a few months of ega headlines after which the FSA could go back to beating up the banks and stop this puerile intimidation by degrees of the broker corp. This industry deserves some good news for a change.
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Anonymous | 19 Mar 2010 4:26 pm
If there is mortgage fraud then the people responsible should hunted down and dealt with and we should look to the FSA to do this. This should also apply if the people have left the industry.
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Anonymous | 19 Mar 2010 9:38 pm
89% increase in provision for mortgage losses is highly suspect bearing in mind that the accounts relate to a period after the worst period. Scrutinise the accounts and you may find something fishy.Also does anybody know if and when the B&B shareholders will be compensated?
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Warren | 22 Mar 2010 10:15 pm
Buy To Lets are not really to blame here. Its pure greed that has landed B&B in this situation.
The Bulk of Mortgage Express business was to Buy to Landlords. However, they were offering instant remortgages, whereby you could buy a property at a discount (with a bridging loan) and then remortgage against the full value on the day you purchase.
Who were these people desperate to sell? People who were in the unfortunate position whereby they could not afford to pay their own mortgage. So they sell the property and become the tenant...well hold on...if they cant afford to pay their mortgage, how are they going to pay your rent?? No Rent ultimately means No Mortgage Payments.
Im surprised that MEx/B&B are now saying that these are fraudalent mortgages?? Especially at one time when these mortgages were acceptable under their then criteria.
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Andy Coles, Quest | 25 Mar 2010 4:51 pm
With Bradford & Bingley provisioning a huge sum of £388.4m for potential losses relating to mortgage fraud and professional negligence, it is astonishing to think what the combined total value of mortgage fraud and related risk exposure will be across lending institutions.
On the same day that this news was released, Experian released its 2010 predictions for mortgage fraud losses. In their report, they state that losses could hit £1.2bn during this year. Given Bradford & Bingley's losses alone, I fear that this figure is far below the reality that is likely to filter through during the course of the year.
As I have said before, until we have a clear picture of the scale of fraud we are fighting across the entire industry, we will never overcome the issue. The levels of transparency regarding potential losses need to be clearer and such experiences shared as only then will we fully understand the size of the problem.
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