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It has been published that mortgage fraud is on the increase, its unclear if the level of mortgage fraud has increased or if firms and lenders are getting better at identifying it? Either way it’s important that brokers do all they can to avoid getting involved in fraudulent applications. What are the requirements? What should you be doing? How can you identify mortgage fraud?
Mortgage brokers are not subject to the Anti Money Laundering Rules, and Money Laundering Regulations, but they still need to have systems and controls in place to prevent financial crime and they are subject to the proceeds of Crime Act 2002. Having robust systems and controls in place will reduce the likelihood of being exposed to fraudulent applications. Fraudsters tend to prey on firms with weak controls in place, and once they have been successful they are more likely to use the same firm to submit further applications.
What do brokers need to do? It depends on the type of firm, firm size and nature of the risks. A small firm dealing face to face with local customers will not be exposed to as much risk as a larger business dealing remotely with customers. As a business you should be able to evidence that you are doing sufficient to prevent fraudulent applications. You need to correctly identify the customer, have evidence of address and income which can be verified.
If you use an introducer, have you carried out sufficient checks? do you have an agreement in place? do you know how the introducer obtained the customer? Once an introduction has been made all dealings should be between the broker and the customer.
You need to correctly identify your customers, in a remote sale ID can be certified as a true likeness by a solicitor, doctor or other professional. Brokers shouldn’t accept uncertified copies for distance sales.
Speak with all applicants involved, to avoid any fraud in which the other partner has no knowledge of the mortgage application, we have seen cases when the partner has applied without the other party knowing and forged signatures.
The internet is a great tool to use to carry out checks. Employers can be checked, if a customer is a business owner they may have a website or directory listings, and you can obtain information on Limited companies such as abbreviated accounts, director and shareholder details. The internet therefore is a useful way to cross check information provided and also find new information.
Firms should also cross check payslip information with bank statement credits, the employer name, pay in amount, pay in type (i.e. BACS) and pay in date should all match. Do the bank statements show any other information such as benefit income which they wouldn’t normally be eligible for. Check for any liabilities the customer hasn’t declared.
When reviewing files it’s not uncommon to see a lack of cross checking between the documents obtained. Finding irregularities between the payslip and bank statement or between the fact find and proofs obtained, should be investigated and notes or additional supporting documents obtained to evidence the checks made.
Lenders carry out checks on business submitted; some checks a broker would not be able to do, such as checking HMRC records and access to online systems such as Hunter. Brokers however can do more to ensure the application meets the lenders expectations and provide additional notes when required to explain any inconsistencies.
Some examples of what you can check for are:
- Making sure all relevant questions are answered in full and correct on the application form.
- If the borrower does not live locally to the property being purchased why is this, are they changing employment, is it commutable and has sufficient budget for transport costs been noted?
- Is the property consistent with the customer’s circumstances, too big/too small?
- Is the income being declared consistent with the occupation stated, if they earn more than would normally be expected from the employment stated why this is?
- Have you provided good evidence of income which is consistent with other information provided on the application?
- Is the property being sold between two members of the same family or between those who have known associations?
- Has the value of the property increased or decreased significantly in a short period of time? If so, is the change in line with the property market conditions in the area?
- Inconsistent address history
- Is it likely that any incentives or discounts will be offered to the borrower to secure the sale? If so, have these been declared?
- Is the deposit being paid by someone other than the purchaser? If so, why?
- Are the same professionals acting on every transaction in the chain e.g. accountant/solicitor etc.
These are just a few of the standard checks that can be made, for more in-depth information on what you can do to prevent being used for fraud please get in touch about the services we offer and the benefits of H3 compliance support.