The UK's fraud prevention service suggested the lack of face-to-face contact between broker and client could be the reason for the disproportionate amount of fraud found in intermediary business.
CIFAS said: “Much mortgage business is carried out at a distance, for example an intermediary such as a broker based in Manchester could be dealing with a client based in London and a solicitor in Birmingham. As the intermediary never meets the client face to face they may find it more difficult to identify fraudulent applications, especially those supported by high quality false documents.”
CIFAS noted however a move towards greater scrutiny of documents – with an increase in the numbers recorded as presenting false evidence of electoral roll information, wage slips or bank statements which did not pass examination. The increase in fraudsters using forged P60s noted in 2009 was not sustained in 2010.
The research showed within mortgage frauds, using false or altered documents, stating false income, or providing false employment details have all decreased from over two thirds of mortgage application frauds in 2009 to account for less than half in 2010.
CIFAS also revealed that last year the most common form of mortgage application fraud was an attempt to hide adverse credit information linked to an undisclosed address (43% compared with 30% of cases in 2009), followed by 22% of cases of applicants simply not disclosing a bad credit history. There was another increase in those providing false employment details (8% compared with 5% in 2009).
Application frauds rose 27% compared with 2009 and now account for 96% of all mortgage frauds, with identity frauds and misuse of facility frauds dropping back to the levels recorded in 2008.
The increase in mortgage application fraud was in line with expectations that falling house prices and tighter lending criteria have exposed falsified mortgages, especially those where key information on the original application form, such as salary, was untrue.
The bulk of the increase occurred in the first half of the year following on from the high end-of-year figures in 2009. There was a subsequent decline in the second half of 2010, with Q3 showing a decline of 14% and a further decline of 9% in Q4.
CIFAS said the overall increase in mortgage application fraud can be attributed to various factors.
Firstly, increased scrutiny by lenders which has detected more issues with applications.
Secondly, the long ‘lag time’ in identifying mortgage fraud. Properties fraudulently obtained during boom times may be abandoned or offloaded hurriedly during a recession, or the account may fall into arrears, meaning that the original fraud is only now being uncovered.
Thirdly, some brokers being under financial pressures due to the economic slowdown and struggling to keep their companies afloat. CIFAS claimed some intermediaries may have turned to fraudulent activities such as changing the details of clients’ incomes in order to obtain a mortgage. It said applicants in such cases may not necessarily be in collusion with the broker.
The CIFAS research highlighted a group of people who falsify applications in order to obtain the mortgage initially, yet who do intend to make their repayments.
It said: “During the boom times these people would obtain a mortgage, pay it as agreed and sell the property for a profit. It is no longer certain that a property sale will make a profit and the applicant is in danger of falling into negative equity. This type of application, however, is likely to have reduced substantially because of the prevailing conditions.”
Richard Hurley, CIFAS communications manager, said: "These findings can be considered a tip of the iceberg in terms of society at large, thus proving clearly that industries should not operate in silos, and other sectors would also benefit from pooling their resources in order to stop fraud."
