In difficult times mortgage fraud becomes increasingly commonplace. Of course, some cases were in progress before the credit crunch began. For example, look at the Thamesmead fraud. This saw home builder Persimmon sell apartments in one of its developments in Thamesmead, south London to property developer Atrex at a massive discount. Atrex is then believed to have created false identities to borrow from lenders at inflated prices, pocketing the difference.
Nevertheless, over recent weeks I’ve been struck by the high number of reports in the mortgage press about brokers being fined, banned or both for fraudulent activity.
The Financial Services Authority has announced it has written to key trade bodies including the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association, the Association of Mortgage Intermediaries and the British Bankers’ Association to set out its efforts to bolster the industry’s defences against mortgage fraud and to make it harder for organised criminal gangs to get away with it.
The regulator has also issued guidance for brokers, commenting that they have passed on useful leads in the past and asking them for increased assistance and vigilance in the future.
Most brokers welcome this activity. Mortgage fraud causes substantial social harm and can be connected to other forms of criminality such as money laundering and human trafficking.
Most brokers are aware of colleagues who are likely to sail close to the wind. That said, whistle-blowing doesn’t come naturally to most of us and I’d surmise that the number of whistles being blown is minimal.
Another route for the FSA to take would be to cut out lenders’ top brass and ask BDMs. Only recently we were discussing this topic with a couple of our excellent BDMs. Having been one myself, I’d suggest to the regulator that they are a good source to tap. Lenders should do more to support their BDMs to report dodgy brokers.
Right now it seems that only definite fraudulent activities are investigated. Perhaps it is time that brokers known to be more creative in the way they submit applications are placed on an industry watchlist and that this information is shared with lenders, if not the FSA. Applicants have to go through personal credit checks and this is acceptable, so why not place brokers under scrutiny too?
Civil libertarians will probably hate this idea but it’s only formalising what the industry can expect in the coming years. It seems likely that lenders will cherry-pick the brokers they wish to deal with and only take business from approved lists.
If we are going to clean up our industry, only those with something to fear will object. I’m sure there will be a host of readers telling me why this won’t work, but as a self-appointed devil’s advocate I’d welcome the feedback.
It’s time our tolerance levels decreased and our willingness to maintain the industry’s reputation increased. My ideas may be wrong but at least we should start talking about what could work.