The regulator accused lenders of having inadequate mortgage fraud systems and controls after conducting a mortgage fraud thematic review of 20 financial institutions representing 56% of lending in the UK.
The inadequacies stem from the lack of education which lender firms have in identifying the potential flags for suspicious mortgage fraud activity.
This lack of understanding was apparent from the junior level all the way up to senior management, the FSA said.
Young said lenders were overlooking mortgages taken out on properties well away from where a borrower’s place of work was and lenders were not treating large round figure incomes suspiciously, such as £100,000 per annum.
Young also said lender firms were often seen relying on underwriting to identify mortgage fraud indicators and were willingly overlooking suspicious applications under the impression that underwriters would catch mortgage fraud cases for them.
The FSA has published a consultation paper covering guidance for lender firms containing good and bad practices to safeguard lenders against mortgage fraud.
The paper will be in consultation for three months and lender firms have been invited to provide their feedback.
