Mortgage Fraud Funds Terror
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On top of all the other worries facing the credit markets in the UK at the moment a new and unexpected concern has arisen. A police report has been released claiming that banks are being defrauded of £700 million every year, and this money is going to fund further criminal activities.
The intelligence report by the Association of Chief Police Officers said that organised crime groups used mortgage fraud to generate income and launder money from the proceeds of their operations, such as drugs, human trafficking and prostitution.
Part of the report reads, ‘while there is no evidence to suggest mortgage fraud directly funds terrorist acts, this area of criminality has been encountered during investigations into UK-based terrorist groups. Mortgage fraud can be used to finance infrastructure including safe houses.’
The report was sent to financial institutions and police forces across the country yesterday claiming that it was difficult to assess the scale of the problem, but estimated that fraudsters conned lenders out of about £700 million a year. The average cost of each such fraud to the lender is about £45,000, the City watchdog has said.
The tactics used by the criminals vary. Fraudsters can con lenders out of money by using corrupt surveyors to issue false valuations. This allows them to apply for a loan that is larger than the value of the property. In addition, they will usually apply under a false name, supported by false documentation, and later fail to make any repayments.
On a larger scale, solicitors can assist criminals to secure mortgages illegally. The buy-to-let market is particularly vulnerable to mortgage fraud, whether through new-build apartment complexes or large-scale renovation projects. In January, a High Court judge ruled that a former head of valuations at a subsidiary company of the troubled property services company Erinaceous was liable for an £11.5 million mortgage fraud after he overvalued a property.
In the past few days the City watchdog said that it was considering levying fines and penalties on more than 70 mortgage brokers as part of a plan to tackle organised home-loan fraud.
As awareness of the problem has grown more than 200 brokers have been referred to the Financial Services Authority over the past 18 months by lenders suspicious that they might be involved in fraudulent activity.
The FSA recently highlighted the threat of organised crime rings using mortgage and property fraud to make profits. Last month, Philip Robinson, financial crime and intelligence division director at the FSA, said: ‘There seem to be a lot of criminals who have realised that mortgage fraud allows them not only to wash their ill-gotten gains, but make a profit in the process.’
The financial services industry is expecting the media to pick up on this story because of a justifiable anger felt by those legitimate customers who cannot get loans and mortgages while criminals milk the system. While this does mean that fraud should be reduced, lowering the cost of borrowing in the process, securing a loan could become even more difficult in the coming months as banks and other lenders tighten further their eligibility criteria.
