Huge rise in mortgage fraud, report cops

LONDON: London police have reported a 72 per cent increase in cases of financial fraud largely driven by a jump in mortgage scams over the previous year.The force said allegations of mortgage fraud had reached double figures and were one of the largest areas of activity for its officers. The number of investigations is expected to increase over the next year as frauds came to light and lenders sought to recover their losses, it said.Last week Chelsea Building Society became the second lender to be hit by mortgage fraud after Bradford & Bingley said it was the target of criminal gangs.Chelsea estimated its losses at GBP41 million, which pushed the mutual into a first-half loss of GBP26 million. The building society (savings and loans company) said gangs with the support of professional advisers were behind fraudulent buy-to-let loans made between 2006 and 2008 on hundreds of properties in Manchester, Leeds and several other northern English cities.This month Bradford & Bingley, the nationalised buy-to-let lender, set aside an extra GBP100 million for potential losses from mortgage fraud.Detective chief superintendent Steve Head, the chief of the City of London’s economic crime directorate, said mortgage fraud “was happening all over the country” and “has jumped from nothing 18 months ago to being one of the biggest areas of investigation”.Head said he expected the number of investigations to rise, though lenders were being slow to report cases to his unit, which has taken the lead in tackling financial crime since 2003.“While the amounts of money we are dealing with are significant, I don’t think we are seeing the full picture. It is a fraction of the fraud that has taken place. It is the mortgage lenders that are hit by the crime and they usually see it first. It would be good if the lenders were coming forward more than they are at the moment.” Most of his work centres on potentially fraudulent mortgage applications or professional negligence on property valuations.Last year the Association of Chief Police Officers estimated that mortgage frauds rake in GBP700 million a year.“Greed is the driving factor in fraud,” said Head. “There are some where there are family links, some cultural links and some where the only link is greed. But a valuer is a key figure in the process.”
Anatomy of a scam
LONDON: Gangs would buy a property, typically in a large development, at a deliberately inflated price. Once purchases appeared on the Land Registry website, they would be used as a basis for further valuations, enabling fraudsters to obtain inflated mortgage applications on other homes, often in the same development. So, if a property was valued at £250,000 but was only actually worth £200,000, the gang could pocket £50,000 to fund further deposits. The gang would usually include a solicitor and surveyor “on the payroll” to ensure that the funds from the lender were siphoned off.The frauds went undetected because, at the height of the boom, lenders were happy to hand out mortgages without carrying out their own due diligence but relying on third-party valuations. — The Guardian