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Fraud is the UK’s biggest barrier to mortgage lending growth

by: Benson Hersch
  • 10/11/2014
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When fraud is costing financial institutions more than the cost of running the police force, something is seriously wrong, says Benson Hersch.

Fraud cost the UK £52bn last year and is the most serious crime problem affecting the UK. This was reported by the Detective Chief Inspector within the Economic Crime Directorate at the City of London Police presenting at the ASTL conference in September. That is twice the cost of funding the UK police force.

The most prevalent current issues are mortgage fraud, payment diversion, and money laundering. One of which is likely to affect every financial institution at some point, however careful they may be. A key crime is also ‘insider fraud’ where someone from within a financial institution is responsible.

According to the DCI, the police consider fraud a crime that is not taken seriously enough by firms. The mortgage industry appears to feel otherwise, however. At a seminar at the Mortgage Business Expo last month a panel was asked what the barriers to the growth of mortgage lending were. The main issue raised was the increased incidence of fraud, which was believed to be going down at one stage, but has now resurfaced with a vengeance. This has been backed up by a recent report from Experian which found that in August this year 16 in every 10,000 applications were fraudulent, more than double the seven in every 10,000 applications in August 2013, a rise of 129% in detected fraud. This means that the level of undetected fraud is likely to be even higher.

It raises the need for lenders, brokers and everyone in the lending supply chain to be constantly aware of the risk of fraud and justifies the level of concern expressed at the MBE. There is software available to share information on attempted frauds and there are providers such as SIRA whose whole reason for being is to help you to prevent fraud. The police also have divisions such as Genesius, Maxim and Amberhill which target the production and use of fraudulent documentation.

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While some systems are very sophisticated, the DCI pointed out that many frauds can be prevented by good internal processes and governance and often a case of looking for simple mistakes in a loan application. These can be spelling mistakes in something like a company name, or a rogue looking email address, for example a hotmail address from what should be a large company. These are simple checks but often the people within a lender who receive such letters are unaware of what to look for so fraud prevention should be something that everybody within an organisation should be aware of.

Another way of avoiding fraud is checking intermediaries and service providers. In the experience of ASTL members, it appears that some introducers will test the water to start off with, often with something very minor and, if that gets past, then they may propose larger and dodgier cases. There could be corrupt solicitors, surveyors, brokers or lender insiders. These could well be corrupt individuals in firms where principals are unaware of what is happening. In many cases it can require an insider in the lender to be complicit in order for the fraud to succeed. Sometimes the broker will be oblivious of the fraud, even though it has come through them, if they have been receiving leads from unverified introducers.

There has been a call just this week for lenders to do more to prevent fraud, but I would argue that it is something that all players in the market need to be aware of and play their part in preventing. Often one will sense when things don’t feel right it just needs that person to stop and investigate whether this suspicion is well-founded or not. As the well-known saying goes “If something looks too good to be true it usually is”.


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