The Money Programme revealed a widespread mortgage fraud last October with brokers from some of Britain’s biggest estate agents and financial advice groups advising customers to break the law and lie about their incomes to get massively bigger mortgages. It revealed how illicit cash raised by this method has been pouring into the housing market, boosting prices.
A follow up investigation The Great Mortgage Fraud – The Money Programme (tx: February 11th at 7.30pm on BBC TWO) claims that the problem is even more widespread and that furthermore lenders are aware of the practice and turn a blind eye.
Andy Frankish from Mortgage Talk says: “Brokers certainly knew this was happening, I’m certain lenders knew this was happening as well.”
October’s investigation focused on self certified mortgages – where borrowers simply state their incomes and lenders promise not to check. Official figures show these account for about 6% of mortgages and the mortgage industry was quick to play down the scale of the problem. But The Money Programme has found that up to 30% of mortgages are issued without proof of the borrowers’ income. Where self certified mortgages are not offered fast track mortgages often are - proof of income is not asked for but brokers reserve the right to check incomes if they choose.
The mortgage business regulates itself through the Mortgage Code Compliance Board. It inspects the paperwork of around 200 brokers a year but despite this it failed to pick on the widespread lying. The programme reveals it is child’s play to manipulate the controls – for example giving a false profession to match the salary and so avoid suspicion.
Broker David Bliss talks openly about encouraging clients to lie. At the time of the making of the programme he was being investigated by the mortgage regulator.*
* Since Mr Bliss was interviewed for the programme, he has suffered a heart attack and died.
In the programme, David Bliss says he had no trouble with exaggerated incomes and they were rarely checked. David maintained he had not done anything wrong because lenders offering self certified mortgages encouraged brokers and borrowers to lie, and turned a blind eye when they did.
“When the programme actually showed that nine out of ten of the financial advisers are… telling clients they need to lie…I would have done the same, so I felt comfortable that I was in the majority if you like,” he said.
David arranged around ten fast track mortgages a month with Northern Rock and says perhaps half had an exaggerated income. Not one was checked. Northern Rock defends it systems and says it has checks in place to ensure there is no systematic abuse or over borrowing. But it’s not just Northern Rock - with at least a 25% deposit a string of high street lenders will give a standard mortgage with no proof of income.
Keith Butler, mortgage analyst, believes some lenders may not be looking too hard, preferring not to know.
“If they knew something was going on, they’d have to do something about it. Whereas all the time they don’t know, it can just continue and all the time it continues, they’re lending more and more money to individuals and they’re making more and more profit, so why would they want to know?”
The Council of Mortgage Lenders insists that the problem is not that serious. However one of their members the Portman Building Society is not so sure. Portman offers fast track loans for borrowers with a 35% deposit or more. Mathew Wyles, a director at the society said: “Portman as a building society is a pretty cautious lender and even we have found incidences of some of this abuse and we know that some of our larger competitors particularly some of the banks are out there with more aggressive strategies in terms of fast tracking applications and I think that they would have quite a lot of this in their portfolios now.”
The Money Programme also re-visits other aspects of last October’s investigation. It revealed at that time that brokers advised undercover researchers posing as first time buyers to lie on applications for self certified mortgages from among others, The Bank of Scotland, The Mortgage Business and Birmingham Midshires. All three are part of the Halifax Bank of Scotland Group – Britain’s biggest mortgage lender.
HBOS did take some action - it withdrew a suggestive advert, suspended three advisers and stopped selling self certified mortgages directly to the public. But The Money Programme reveals it is still selling self certified mortgages through brokers and still telling borrowers that incomes will not be checked.
