FSA to review 20 lenders’ fraud systems
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The Financial Services Authority is to visit 20 mortgage lenders to check they have adequate anti-fraud systems in place.
Margaret Cole, director of enforcement and financial crime at the FSA says one reason mortgage fraud became so prevalent during the boom years was because sales targets and incentives led to lending decisions that were not in the long-term interests of lenders.
Speaking at a British Bankers’ Association conference, she told delegates that in extreme cases it saw cases of bank staff effectively colluding with customers to mislead their employers into granting a mortgage.
Cole says: “As part of the thematic review we are visiting 20 retail lenders to examine whether their internal systems to manage fraud risk are sufficiently robust and to ensure incentives offered to salespeople do not undermine efforts to contain fraud.”
The results of this review will be published next year.
It has banned nearly 100 mortgage brokers for failures related to mortgage fraud since 2008 and has imposed penalties of over £2m.
The FSA welcomes the initiative to allow the Inland Revenue to share information with lenders.
Cole says: “The power of income verification in combating financial crime was illustrated by a pilot scheme run by Her Majesty’s Revenue and Customs last year. This scheme allowed lenders to check whether income details supplied on mortgage applications matched the data held by HMRC.
“During the pilot over £111m worth of mortgage fraud was prevented.”
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Readers' comments (16)
Victor Meldrew | 10 Nov 2010 4:08 pm
The FSA seem to have a never ending supply of ways to amaze us. Who knows they might just find out that self cert can work if it is properly applied and regulated.
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AP | 10 Nov 2010 6:57 pm
Ahh, the nub of the matter is that lenders were complicit in getting people to bend the truth and then just lie outright. Broker consultants would come in to tell you exactly how to navigate the system underlining that there would be no checks, Northern Rock even had a special senior underwriter who's job was to 'find a way', products were designed to shovel cash out the door to anyone with a heartbeat. And little else.
That together with mortgage regulation overlooking the requirement to vet brokers for fit and properness created a situation where being an honest broker required that you tie both arms behind your back in the fight against the competition. The BoE and the FSA allowed lenders to create this environment and were effectively complicit themselves.
Responsibility for underwriting and terms lies with the LENDER, not the broker. At least the FSA are belatedly picking up on this. When will they do a themed visit on themselves?
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Anonymous | 10 Nov 2010 7:48 pm
This is a funny article as it states the FSA knew that bank staff made dodgy applications. None of them have been banned or fined yet the report goes onto state over 100 intermediaries have been banned.
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Anonymous | 10 Nov 2010 10:25 pm
To Victor, get a grip-self cert was never a good idea! If you don't declare all your income to the inland revenue then why should lenders agree to accept that income source!
I have have worked at various lenders both prime and subprime and never really agreed with it! Even when the market was booming self certs were underperforming in terms of arrears which is why many lenders and now all withdrew them.
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NR | 11 Nov 2010 10:16 am
To Anonymous (10th Nov 10.25pm)
One of the main reasons self-certification became neccessary was the interpretaion of "income" by lenders. The vast majority of underwriters seemed incapable of interpreting trading accounts, using the "net profit" figure as a poor substitute for disposable income.
For most self employed a genuine net profit figure - legitimately calculated to minimize tax liability - bears little or no resemblance to their disposable income.
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Anonymous | 11 Nov 2010 10:57 am
I agree with AP the Broker is responsible for the product being suitable the lender is resposible for the underwriting.
I spoke to a lender the other day who sujested that the broker is also now responsible for the valuation. If a down valuation takes place on a re-mortgage and the client looses a booking fee it's the brokers fault!!!!!!!
It's raining outside....brokers fault again.
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Grey Haired Underwriter | 11 Nov 2010 11:22 am
I love the way the debate has shifted from the subject back to lender bashing ior defence of the indefensible. The thematic review has been going on for months - I know because I work for one of the 20 and i am bound to say that it was a good logical and capable audit headed by someone who actually understood risk. If the FSA can produce usable statistics it will go some way towards creating best practise and that has to be good.
In response to some of the points raised I would make the follwoing comments:
1) There are a very large number of brokers who go doolally at the sight of accounts - I know because once you use a word like cashflow they seem to go into a catatonic state
2) I agree that net profit may not genuinely reflect actual disposable income but the fact that soemone is trying to avoid paying tax doesn't make it right. Effectively you are saying to the lender - ifgnore the evidence and pick an income figure ot of fresh air. Sounds like self cert.
3) There is no such thing as a down valuation. The fact that the borrower thinks his/her property is worth more than the valuer does doesn't make the borrower right. Valuations are opinion and it is my inclination to go with the opinion of an expert. Calling the valuer's opinion a down valuation is as legitimate as calling the borrwoer's opinion and over valuation. Let's not be quite so emotive in our wordings and accept that borrwoer optimism isn't always accurate.
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Anonymous | 11 Nov 2010 11:25 am
Anon 10.57 am's response from the lender seems harsh.
However, I can see their view to a certain extent - any adviser is required to "Know the customer" and this includes details of the property. How many advisers would knowingly agree with a client who thinks their property is worth much more than it is? Let's face it, it's not hard to obtain comparables for standard property types - it's the unusual properties which are more difficult to value.
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Anonymous | 11 Nov 2010 12:03 pm
Grey haired underwriter couldn't possibly see anybody elses point of view because thats what he is a'Grey haired underwriter' distanced from the real world stuck in his ivory tower.
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NR | 11 Nov 2010 12:26 pm
Re: Grey Haired Underwriter
Regarding point two.....I fail to see a direct corelation between the amount of tax somebody pays and their ability to meet a given mortgage commitment.
It is far more relevent to assess "disposable income" when posing the question of whether the applicant can afford the repayments.
The fact that they have legitimately and efficiently reduced their tax liability suggests they are a better risk.
A person should not be demonised for tax avoidance, which you seem to suggest. If it "wasn't right" to avoid tax I am sure HMRC would not allow it. Tax evasion, on the other hand, is a different matter.
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