news

Sharp rise in mortgage fraud cases

By Jason Pope

UK banks and building societies closely guard their fraud figures, however we have learned that building societies experienced a sharp increase in the number of residential mortgage application fraud cases in 2006. The number rose by 27%, but by value the increase was more than 50% compared with the year before. The Building Societies Association represents approximately 20% of the new residential mortgage business. Projecting their figures onto the industry would mean mortgage fraud was Ł3.5billlion in 2006. It seems staggering, but it is still only 1% of advances.

The largest proportion of mortgage frauds consistently relates to employment details, with about a third of fraudulent applicants. However, in 2006 there was a big increase in applicants trying to hide adverse credit information (circa 30% of frauds).

"Most mortgage application frauds are introduced by third parties rather than as direct applications." Murray Bailey, Managing Director of Windsor Consulting, commented. Over 80% of all building society residential mortgage applications were via third parties. Whereas the share of fraud cases classed as inflated income, impersonation and forged documents was nearer 90%. On the other hand the categories of undisclosed debts, false address and false employment showed a share of less than 70% for the third party introducers. "It is difficult to know whether the applicants are fraudsters or are merely duped by greedy intermediaries. It's an important difference when considering the individual for other financial products."

The average value of mortgage application fraud was Ł152,000, 20% higher than in 2005. The main contributor to the overall increase in average value was from applications with false employment details. The average for this group was almost Ł200,000 in 2006 - a rise of over 55%.

Graham Lund, Assistant Managing Director of Call Credit commented, “Whilst there has undoubtedly been an increase in applicants distorting information to obtain a mortgage, I think the increase is more about the industry waking up to better identification of mortgage fraud. Smart use of tools to target cases is improving both the efficiency of investigation and detection rates.” Callcredit provide a range of solutions from the award winning CallML to geographic models like GeoFraud.

Mortgage fraud exceeds $1billion in the US and in 2006, mortgage SARs (Suspicious Activity Reports) were 35,000. “Mortgage Fraud is clearly becoming a problem that requires the unified efforts of law enforcement, regulators, and industry,” said Karen Spangenberg, FBI Section Chief of the Financial Crimes Section. There is a big difference between t similar US and UK fraud numbers. The US report openly and focus on the criminals rather than the softer 'manipulation' fraud cases. A number of high profile multi-million dollar fraud scams hit the US press during 2006. The most intriguing was masterminded by Matthew Cox. Cox who used a number of stolen identities had a range of scams involving “straw men” and multiple loans on a single property.

Murray Bailey, Managing Director of Windsor Consulting, commented. “At the moment, UK mortgage fraud is principally an individual desperate to get on the housing ladder. In the US, mortgage fraud is big business. As the US mortgage industry and FBI get their act together, we need to prepare for the criminals who may see the UK as an easier target.”

	Sharp rise in mortgage fraud cases By Jason Pope UK banks and building societies closely guard their fraud figures, however we have learned that building societies experienced a sharp increase in the number of residential mortgage application fraud cases in 2006. The number rose by 27%, but by value the increase was more than 50% compared with the year before. The Building Societies Association represents approximately 20% of the new residential mortgage business. Projecting their figures onto the industry would mean mortgage fraud was Ł3.5billlion in 2006. It seems staggering, but it is still only 1% of advances. The largest proportion of mortgage frauds consistently relates to employment details, with about a third of fraudulent applicants. However, in 2006 there was a big increase in applicants trying to hide adverse credit information (circa 30% of frauds). "Most mortgage application frauds are introduced by third parties rather than as direct applications." Murray Bailey, Managing Director of Windsor Consulting, commented. Over 80% of all building society residential mortgage applications were via third parties. Whereas the share of fraud cases classed as inflated income, impersonation and forged documents was nearer 90%. On the other hand the categories of undisclosed debts, false address and false employment showed a share of less than 70% for the third party introducers. "It is difficult to know whether the applicants are fraudsters or are merely duped by greedy intermediaries. It's an important difference when considering the individual for other financial products." The average value of mortgage application fraud was Ł152,000, 20% higher than in 2005. The main contributor to the overall increase in average value was from applications with false employment details. The average for this group was almost Ł200,000 in 2006 - a rise of over 55%. Graham Lund, Assistant Managing Director of Call Credit commented, “Whilst there has undoubtedly been an increase in applicants distorting information to obtain a mortgage, I think the increase is more about the industry waking up to better identification of mortgage fraud. Smart use of tools to target cases is improving both the efficiency of investigation and detection rates.” Callcredit provide a range of solutions from the award winning CallML to geographic models like GeoFraud. Mortgage fraud exceeds $1billion in the US and in 2006, mortgage SARs (Suspicious Activity Reports) were 35,000. “Mortgage Fraud is clearly becoming a problem that requires the unified efforts of law enforcement, regulators, and industry,” said Karen Spangenberg, FBI Section Chief of the Financial Crimes Section. There is a big difference between t similar US and UK fraud numbers. The US report openly and focus on the criminals rather than the softer 'manipulation' fraud cases. A number of high profile multi-million dollar fraud scams hit the US press during 2006. The most intriguing was masterminded by Matthew Cox. Cox who used a number of stolen identities had a range of scams involving “straw men” and multiple loans on a single property. Murray Bailey, Managing Director of Windsor Consulting, commented. “At the moment, UK mortgage fraud is principally an individual desperate to get on the housing ladder. In the US, mortgage fraud is big business. As the US mortgage industry and FBI get their act together, we need to prepare for the criminals who may see the UK as an easier target.”