Mortgage fraud – a multifarious beast

The recently formed Mortgage Fraud Forum is already starting to see success as a result of a multi-agency approach of working together and sharing information. The National Fraud Authority’s Des Fitzpatrick explains

With figures from the Council of Mortgage Lenders showing £11.3 billion loaned for mortgages in May this year, it is easy to see why the industry presents such an attractive opportunity for those intent on fraud and why tackling mortgage fraud has been a top priority for the National Fraud Authority (NFA) since its inception.

In the first Annual Fraud Indicator, published in January 2010, the NFA estimated that mortgage lenders lost over £1 billion in 2008– that’s over 10 per cent of the total fraud loss by the private sector. The Indicator showed that fraud overall, for private sector, public sector and individuals, cost the UK £30.5 billion in 2008.

On top of these losses are other financial costs including claims against specialist indemnity insurers who insure professionals, such as solicitors and valuers, as well as claims against the Land Registry compensation fund. The consumer sees the impact as well; with lenders and insurers increasing prices to cover their fraud losses.

However, the impact of this crime often goes beyond the financial impact of those companies defrauded. As with so many other frauds, the proceeds of the crime often go to fund other serious organised crimes, such as drug smuggling or people trafficking. Mortgage fraud itself can also have a devastating effect on innocent homeowners and businesses.

Building strong foundations
As those reading this will be aware, the mortgage and conveyencing process is a complex one involving numerous people, from the borrower, estate agents and lender, to solicitors, valuers and the Land Registry. Mortgage fraud does not occur at a set point in this process, nor does it occur by a single methodology. It’s a multifarious beast that needs all of us to work together to fight it. This is why the NFA, in conjunction with the Metropolitan Police, developed a Mortgage Fraud Forum in January 2010.

The main aim of the Forum, which involves organisations from across the sector, is to provide governance to a programme of activity to improve the way we deal with mortgage fraud. We want to see a reduction in the level of mortgage fraud and we believe that a multi-agency, co-ordinated, strategic response is the best method to ensure maximum impact.

The forum has provided a structured environment where free discussions in regards to prevention and detection can take place, best practice can be shared and solutions to shut down opportunities for fraudsters can be discovered.

Reflecting the diverse groups and the range of participants in the mortgage process, the forum includes representatives from lenders, law enforcement, valuers and regulators. Recently estate agents have joined the forum as we recognised the level of importance of agents in the process and their ability to identify emerging threats and any issues arising.

Effective results and best practice
The first significant successes of the new approach are estimated to have saved £130 million through fraud prevention initiatives.

Council of Mortgage Lenders (CML) and HM Revenue & Customs (HMRC) conducted a pilot exercise to assist lenders with checking income details provided by mortgage applicants where fraud was suspected. CML estimated that the pilot identified and prevented mortgage frauds with a total value of more than £111 million. Following the pilot, the March 2010 budget announced the introduction of a formal mortgage scheme to combat suspected fraud. Provided lenders have exhausted all other available validation tools, HMRC will check information from mortgage applications against income details provided in tax and/or employment returns. This will also allow HMRC to gather valuable information about people who may be committing tax fraud by wrongly declaring their income.

One area of the process that facilitates fraudsters is the existence of corrupt or negligent mortgage intermediaries, solicitors, surveyors and licensed conveyancers. Removing these links in the chain will have a huge impact. Curtailing the activities of dishonest professional and ensuring conformity to best practice is now a key focus of the Mortgage Fraud Forum. Investigations by the Solicitors Regulatory Authority (SRA) into solicitor involvement in fraud are estimated to have already saved lenders up to £20 million.

The work of the Land Registry, another member of the Forum, is another good example of the benefits that come from increasing the amount of investment and priority given to anti-fraud activities. Their preventative work has involved new staff, systems and training and has prevented frauds with an estimated value of £20million.

Also taking an active part in the Forum are law enforcement agencies. These too have seen success from their increased pursuance of mortgage fraud investigations. The City of London Police (the National Lead Force for fraud) worked on more than three times the number of mortgage fraud cases in 2009 than they did in the previous year. Other forces across England and Wales have also had high profile mortgage fraud investigations and prosecutions, helping to create a visible deterrent to fraudsters.

And, of course, it was the Metropolitan Police who worked with the National Fraud Authority to set the Mortgage Fraud Forum up.

All these successes are a result of joined up work between the public and private sector as well as within sectors and show that the importance of information sharing should not be underestimated. Although this increased dialogue between different parties has already led to a much greater understanding of the issues and vulnerabilities at various stages along the process, we’re not resting on our laurels - more still needs to be done.

We understand that barriers to sharing intelligence still exist, despite these impactful results, and that there is a need to balance the management of fraud against commercial sensitivities. But we hope that the work of the Mortgage Fraud Forum will continue to provide solutions and make further progress in breaking down barriers.

Where next?
In a relatively short time, the Forum has gone from strength to strength and we want to build on that; create fewer opportunities for fraudsters and see the Mortgage Fraud Forum as an established strategic forum combating the UK’s mortgage fraud problem.

Over the coming months, the Forum will be providing updates from the seven key areas that it will focus on over the coming year:
1. Intelligence sharing
2. Solicitor involvement in mortgage fraud
3. Case studies / best practice
4. Communications
5. Law enforcement response to mortgage fraud
6. Land registration issues in mortgage fraud
7. Identity and transaction verification

Raising public awareness
Raising public awareness of mortgage fraud and highlighting the seriousness of falsifying any part of a mortgage application is key to future prevention. The Forum will use planned communications activity to explain the wider impact that fraud has on interest rates, insurance costs and the availability of mortgage products as well as highlighting the risks to consumers.

Improve reporting mechanisms
The Forum is also looking to address the problem mortgage lenders and others sometimes experience when attempting to report mortgage fraud. To increase the levels of reporting, facilitate information sharing and improve the intelligence flow to police, we are developing guidelines for mortgage lenders and others to provide clarity on where to report mortgage fraud and exactly what information is required. We hope one day to see a process whereby you’ll only have to report to one place and the information will be shared amongst all the relevant bodies.

Focussed enforcement
A feasibility study into a dedicated central mortgage fraud enforcement unit supported by the private sector is currently being undertaken. It is anticipated that should the unit go ahead, it would be similar to the Dedicated Cheque and Plastic Crime Unit [DCPCU]. This unit was set up eight years ago and recent figures show that the Unit has prevented an estimated £340 million of card and cheque fraud losses. Such a unit in the mortgage sector would look to have a significant impact on the sector, as well as increase the operational response to mortgage fraud through the development of expertise in investigating such fraud cases.

Analysis
To increase understanding of mortgage fraud threats further, the Forum is developing a series of case studies. These will look at cases from different organisations and be shared within the industry to highlight emerging trends and methodologies, as well as provide information for more effective targeted preventative activity.

As we’ve already seen, the risk posed by corrupt or negligent solicitors is high and can have a negative impact on the rest of the profession. A secondee from the SRA is currently based at the National Fraud Intelligence Bureau working with police to enhance the sharing of intelligence on solicitors involved in mortgage fraud. This work will feed prevention, regulatory and enforcement activity in both the police and private sector.

Beyond the Forum
The Forum of representative bodies is an important first step, however, to really win the fight against mortgage fraud and see a difference, the change must be made at all levels and by everyone involved in the mortgage process. There must be a willingness to share information and to make fraud prevention part of ‘business as usual’. As you can see from the work of the SRA and HMRC, integrating prevention with every part of your process from product design to delivery can make a huge impact.

With a wide range of professional organisations represented in the forum, it is hoped that everyone who works in the sector has a route to feed information into the Forum and of hearing about the important work the Forum is undertaking. We remain confident that the ongoing efforts of all our mortgage fraud partners will continue to deliver cost savings and significant improvements in reducing the threat of mortgage fraud in the United Kingdom.

Des Fitzpatrick is interventions manager at the National Fraud Authority

Membership of the Mortgage Fraud Forum

National Fraud Authority
City of London Police
Council of Mortgage Lenders
Association of British Insurers
Land Registry
Royal Institute of Chartered Surveyors
Building Societies Association
Council for Licensed Conveyancers
Financial Services Authority
Law Society
Solicitors Regulation Authority
Metropolitan Police Service
HM Revenue and Customs
Serious Organised Crime Agency
National Federation of Property Professionals