With almost one in every two crimes a fraud or cybercrime1, it’s little surprise that mortgage fraud continues to pose significant risk for Mortgage Lenders in the UK.
With mortgage lending worth around £1.3t2 and annual losses of around £1b2 - whilst overall patterns have shown some decline in the levels of mortgage fraud since the financial crisis in 2008, a 17.6% increase in adverse mortgages was recorded in the National SIRA database in 20163.
In 2016 alone, almost 3,0001 cases of mortgage fraud were recorded and with opportunistic individuals and organised crime groups set to benefit from significant sums, mortgage fraud remains a high-ticket crime.
With more consumers opting to apply for financial products online this is also attracting multiple attacks to Lenders...
9/10 fraudulent applications for all financial products are made online1. Increasingly, this is down to identity fraud, a growing issue in the UK with 51% of fraud in 2017 being categorised as identity fraud2 in the National SIRA database.
With the increased competitive, complex and regulatory challenges faced by Lenders, placing trust in both consumers and mortgage professionals is no longer an accepted ‘norm’.
These threats must be identified early in the process so that Lenders can challenge the applications’ validity before legal completion, thus mitigating the risk of loss before they materialise ‘on book’.
With the increased competitive, complex and regulatory challenges faced by Lenders, placing trust in both consumers and mortgage professionals is no longer an accepted ‘norm’. This Whitepaper outlines some of the key challenges Lenders face and explores how solutions such as SIRA, provided by Synectics Solutions, and any combination of specialist data services they provide, can create a highly effective counter to some of the unique fraud types mortgages attract.
THE HOUSING CRISIS
With increased consumer demand for properties to buy and a shortage of readily available housing stock, average property prices continue to remain high in large parts of the UK. House prices grew by 4.7% in the year to May 2017, with the average price of a property in the UK tipping £220,712.
Many houses are beyond the purchasing power of people on low to average income and even to some existing homeowners due to increased regulation and stricter lending criteria. Mortgage fraud is being turned to as a way of bypassing eligibility and affordability checks, sometimes assisted by mortgage ‘professionals’ who normally act as the Lenders’ first line of defence.
Organised crime groups target the complicated process of purchasing a home to look for weaknesses they can exploit and profit from due to the large sums of money involved in property transactions.
In the UK alone, Synectics Solutions’ SIRA database processes over 2 million mortgage applications and found the following in 2017:
- Application fraud occurred in 92% of residential and 66% of buy to let mortgaged fraud
- Identity theft occurred in 8% of buy to let compared with just under 2% in residential mortgage fraud
- 97% of residential fraud is opportunistic with 3% through organised crime groups
- 88% of buy to let fraud is opportunistic with 12% through organised crime groups
There are several types of mortgage fraud a Lender is exposed to that are important to explore alongside countering the thread that ‘rogue’ mortgage professionals pose.
...a 17.6% increase in fraudulent mortgages was recorded in the National SIRA database in 2016.3
PROFIT OR PROPERTY?
Broadly speaking, mortgage fraud can be categorised into two distinct types; mortgage fraud for profit and mortgage fraud for property. Typically, property fraud will attract a higher level of genuine customers (1st party) who are undertaking opportunistic fraud in order to get the house they want, whereas profits are usually targeted by organised fraud groups (3rd party) where fraud is committed against an account holder by an unrelated party.
"Mortgage Lenders must protect themselves by ensuring professionals are registered and thoroughly vetted before being accepted...”
MORTGAGE FRAUD FOR PROFIT
With significant financial assets changing hands, mortgage fraud is an attractive target for fraudsters and can include direct attempts to steal a mortgage advance, free sale proceeds, deposit monies, or deliberately manipulating or hiding key facts, in order to gain financial benefit.
Identity theft and impersonation fraud is a significant risk to Lenders who may enter into a transaction where the property may not actually be for sale, or where the genuine transaction is hijacked and proceeds from the sale are stolen.
Often vulnerable or deceased property owners or properties that are free of mortgage are targeted and sophisticated techniques, often by organised groups, are used to evade detection. In the past year, 96% of fraud was committed with a victim’s genuine identity, with 78% using the victim’s current address1.
Risk to Lender: loss of mortgage advance, failure to get a registered security, long and costly professional negligence claims to recover losses.
BELOW MARKET AND VALUATION FRAUD
Falsifying valuations, often using a complicit surveyor and targeting vulnerable people or companies in distress, can lead to property investors purchasing a property well below its true market value. Profit can be made on the mortgage advanced and the actual price that was paid to the property owner.
Risk to Lender: Deceived into advancing 100% or more of a property’s true sale price or value leading to a precarious financial and legal position.
RIGHT TO BUY FRAUD
More local authority and housing association tenants are eligible to purchase their social housing, but with the potential for large discounts and onward sale profits, fraudsters are falsifying information to obtain mortgages.
Where those who are not eligible for mortgages due to the receipt of benefits or being on low incomes and use false employment and income details, increase the potential to default on the mortgage.
Risk to Lender: Costly recovery and enforcement action needed once fraudulent mortgage applicants default.
MORTGAGE FRAUD FOR PROPERTY
Where ‘standard’ application fraud is done to boost the amount of money they can borrow, here the true intention for use of a property is concealed in order to get preferential mortgage products and/or interest rates.
INCOME BASED FRAUD
Affordability checks and stress testing of a borrower’s income was introduced following guidelines from the Mortgage Market Review (MMR)4. Leading UK mortgage Lenders have reported an increase in the number of false or inflated income frauds being perpetrated as a consequence.
This type of fraud is usually accompanied by forged or altered payslips, bank statements, employment references, accounts or self-employed income certification.
Risk to Lender: Increased risk that the consumer will default, should interest rates rise or income is not from legitimate source, with costly management of collections and repossession activity.
Fraudulent applicants may give false information on whether a property is Buy to Let or Residential in order to obtain preferential interest rates and products, avoid eligibility criteria, benefit from lower deposit requirements, maximise rental yield or minimise personal investment.
Risk to Lender: Lenders must demonstrate and effective control framework to ensure consumers are not cheating the system and entering into contracts that are not suitable to their needs.
WHEN MORTGAGE PROFESSIONALS GO ROGUE
Before the legal completion of a property transaction, there can be multiple stages and professionals involved. If one or more of these professionals acts outside of rules and processes in place to prevent the misappropriation of large sums of money, the risk of fraud and challenges to identify it increase.
Some of the ways professionals can enable mortgage fraud include:
- Making false declarations on mortgage applications
- Concealment, hiding or failure to disclose material information relating to a property transaction
- Provision and/or verification of false documents
- Inflating valuations or rental yields
- Not carrying out due diligence checks
- Failure to adhere to legal process and requirements
- Non-compliance to lender requirements
Action: Mortgage Lenders must protect themselves by ensuring professionals are registered and thoroughly vetted before being accepted as an authorised introductory source, conveyancer, employee or service provider that can act upon the Lenders offerings.
THE SIRA SOLUTION
Prevention and detection of mortgage fraud is key for Lenders to keep mortgages that are ‘on-book’ as clean as possible, as are adequate measures and provisions in place to offset the potential for loss that fraud poses.
SIRA offers an integrated fraud detection and prevention solution, enriching intelligence with multiple data sources, including the National SIRA database, ID verification services, PEPs and Sanctions data as well as renowned services such as Cifas and CRIF.
"SIRA offers an integrated fraud detection and prevention solution, enriching intelligence with multiple data sources"
Being able to cleanse data routinely, configure rule and workflows and processing a wealth of data from a variety of sources can help to profile, rank and prioritise referrals or investigations in an optimal way to enable your fraud investigations to deal with growing investigation caseloads.
Additional services can be integrated into SIRA to counter the threats discussed within this paper including:
Death of Registration Information (DDRI): Automated verification against deceased records sourced directly from the General Register Office to support the fight impersonation of the deceased. The resulting alerts can be integrated directly within the overall referral strategy.
Employee Vetting: Offering a flexible screening service focusing on employee data, including temporary staff and contractors.
Land Registry: Direct access to searches are provided through the SIRA solution and can be used to validate property ownership at a supplied address to tackle bogus valuations, false identity and unusual instructions or transactions.
Call Validate: An ID verification, bank account and credit card checking service integrated into the SIRA solution via an automated and integrated web service. Results generate pre-defined alerts that can be incorporated as indicators within the overall referral strategy.
The Affordability Report (TAR): Using shared income, current account and credit data in order to assess affordability, identifying consumer indebtedness and verifying income. The service is integrated into the SIRA solution via an automated and integrated web services call.
National Fraud Initiative Data Sets: Validation against one of the most comprehensive sets of public sector data available today, with more than 200 million records which are collated from more than 1,300 organisations. Available datasets include Housing and State Benefits, Council Tax, UK Visa and Immigration, Payroll, Public Sector Insurance Claimants and Taxi Licences.
Property Risk: Provided by Rightmove or Landmark Analytics, allows the integration of property risk alerts into the SIRA solution via an automated web services call. The data is used to provide fraud alerts identifying anomalies or intelligence relating to a property, such as recent rentals, sales and over valuations.
Third Party Administration: Enabling screening of third party applications through the SIRA solution, providing a facility which can be used for the purpose of on-going management of panels i.e. brokers, solicitors. This service allows for screening against any combination of SIRA data services.
Device Intelligence: Device authentication and reputation screening where the resulting device information (including known history, links and anomalies) is then used to highlight potential fraudulent activity which would ordinarily go unnoticed.
EXAMPLE CASE: PROPERTY HIJACK
A number of Lenders were targeted in a similar way by a network of organised fraud targeting mortgages and using property hijacks to launder proceeds.
Genuine identities were used, manufactured employment, salary credits, photos transferred onto passports and solicitors fully verified them and their deposits.
Where a property was being sold by a family on behalf of an elderly relative no longer living at the address, the elderly person’s identity was compromised. They were added as a director of a company, fraudsters posed as the elderly owner and post was intercepted.
The genuine owners’ solicitor was not apprised of the sale, and a third firm was falsely instructed to act in the sale, distributing funds to accounts on completion. With one property losing over £200k, the elaborate network could be exposing Lenders to significant losses over £1m.
EXAMPLE CASE: HIDDEN INTRODUCER
A rogue mortgage broker was identified through data patterns that proved critical in uncovering over £3m in lending and preventing further losses.
An uplift in applications being declined through a direct channel was able to identify particular traits and helped to position one broker at the centre of them. Whilst income and employment declarations and supporting documents had been provided, these could then be investigated and proved to be fake.
The broker was found to have a history of fraudulent mortgage applications and the majority of the ‘live mortgages’ were found to be being let without consent.
EXAMPLE CASE: SALE AND RENT BACK
A police tip-off identified a number of properties linked to a inquiry where fraudsters targeted vulnerable people over a period of time. Victims signed over properties without full understanding of what they were entering into.
Using accomplices to raise mortgages on the properties and mortgage professionals to hide the scam from Lenders, profits were used to perpetuate the fraud worth £1.6m. Eventually the fraudster was found guilty on multiple accounts in a criminal trial.
To find out how SIRA from Synectics Solutions and the additional data services and components we offer can help your organisation protect itself from the threat of mortgage fraud please call 01782 664000 or email: firstname.lastname@example.org
1. Cifas Fraudscape 2017
2. Centre for Counter Fraud Studies ”€œ 2016
3. Synectics Solutions - Fraud Trends Report 2016
4. Synectics Financial Crime Intelligence Team, National SIRA Database findings
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