FSA demands mortgage fraud action

Fraudulent applications have become a large scale problem, warns the FSA

The Financial Services Authority (FSA) has told lenders to step up their defences against mortgage fraud.

So far this year it has banned or fined 17 mortgage brokers who have been implicated in making actual or potentially fraudulent applications.

The regulator says it is targeting 200 more broking firms to ensure they have sufficient checks in place.

And it warns that some lenders may not be guarding themselves against fraud with sufficient diligence.

"The FSA continues to take very seriously the question of whether lenders' systems and controls for dealing with mortgage fraud are proportionate to the risk," said Philip Robinson, director of the FSA's financial crime and intelligence division.

"We are likely to take particular note of cases where weaknesses in due diligence and customer checks - or in outsourced relationships with third parties - may have contributed to a heightened mortgage fraud risk," he warned.

Easy credit

The FSA's call for tougher defences against fraud is targeted at the whole mortgage industry, including the British Bankers' Association (BBA) and the Council of Mortgage Lenders (CML).

The regulator says the problem has become widespread in recent years because of "easy credit conditions and streamlined application processes."

The FSA is currently liaising with more than a dozen police forces around the country in its efforts to stop people defrauding lenders by making bogus applications for home loans.

The CML's director general, Michael Coogan, welcomed the tougher stance.

"People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more," he said.

"We expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud," he added.

Tip offs

Since 2006 the FSA has been asking lenders to report suspect mortgage brokers to it.

It has received more than 300 tip offs so far, but is disappointed that only 35 out of the UK's 150 lenders have made any reports to the authorities.

It now expects the rest to fall into line.

Despite the downturn in the property market in the past year, and the slump in mortgage lending caused by the credit crunch, the FSA warned that the problem of mortgage fraud could revive along with activity in the market.

And it says it may require senior staff at mortgage brokers to become individually approved by the regulator, something which is not necessary under current regulations.

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