Mortgage lenders need to improve fraud systems

The Financial Services Authority will come down hard on lenders which do not use its new report on mortgage fraud to improve their practices, says Tracey McDermott, acting director of enforcement and financial crime at the FSA.

Speaking at the regulator’s Financial Crime Conference in London today, McDermott says its Mortgage Fraud Thematic Review found lenders have made improvements to crack down on mortgage fraud, but more needs to be done to ensure fraud is tackled effectively when mortgage volumes begin to increase.

She says: “We are concerned that progress has gone further in some firms than others, and we were disappointed by the level of engagement from some firms on information sharing

“All lenders will be able to learn from the review and we will show little sympathy to firms which fail to look at and learn from the report.”

It has uncovered a number of issues that highlight the vulnerability of lenders’ systems.

As part of its review it visited twenty lenders and says it found examples of some examples of good governance across the sector.

But it says there were weaknesses in information sharing and while many firms stressed the importance of sharing info to combat mortgage fraud, lenders’ engagement is patchy, with many failing to engage in initiatives such as HMRC’s income verification scheme and the regulator’s Information from Lenders scheme, which is used to report broker fraud.

Some firms also lacked a definition of mortgage fraud and in several firms senior management were unable to assess the level of risk to the firm and were therefore less able to manage it.

It also says that panel sizes are causing a threat and not all firms have reviewed the size of their panels in relation to current lending volumes and are not keeping them to a manageable size.

It found in small firms, fraud prevention was not part of product development and staff are often stretched/inexperienced in undertaking investigations.

In some firms it says sales commission is an excessive part of remuneration and few firms reward staff for preventing mortgage fraud.