From 26 April, the Mortgage Market Review comes into force, and brings
with it stricter affordability rules. As
such, it increases lenders’ obligation to determine affordability – both now
and in the future.
Some worry however that the rule change may see mortgage application
fraud rise, in avoidance of more rigorous checks. For those with income verification worries,
there is concern they may target alternative mortgage products.
With self-certification ended, we have been warning clients to ensure that
they incorporate strict fraud alerts on unregulated loan business. In fact, Buy-to-Let is increasingly being
mooted as the potential ‘replacement’ to self-certified loans; a straw poll by a
broker magazine asked its readers whether any clients have attempted to buy
property for residential purposes via a buy-to-let mortgage. Out of 275 responses, 52% had witnessed such attempts.
Systems are in place with many lenders to detect this activity, however
it is important that the industry remains vigilant. But who in the property
purchasing chain is actually responsible for policing or reporting related concerns? Where does the responsibility truly lie?
Estate Agents
At the start of the process, Estate Agents are in an ideal position to
gather information on the purchaser and the property, including its potential
for rental, and to understand how the purchaser intends to use the
property. Once a purchase proceeds the
agent is less likely to be involved in the financial transaction – unless the
applicant happens to use their in-house financial advisor. Perhaps there is scope to incorporate
feedback from agents in the process, so their initial findings can be analysed? As unregulated professionals this may be a long
shot, but there’s no doubt that most agents will know the purpose of a given
purchase.
Brokers
Mortgage brokers are often considered to be in the ‘hot seat’ as it is
their recommendations that will be adopted by the applicant in terms of which
mortgage product they should opt for. It is therefore up to brokers to extract enough
information on the applicant, their intentions and plans for the property plus their
relevant financial history, to make an accurate judgement. Brokers have a duty to report any suspicions
they may have, whether related to falsified ID or income data. We are seeing lenders tightening up their
management of broker panels with some refusing to accept further business if
fraudulent applications are submitted.
Surveyors
We've spoken about the surveyor community as being the ‘eyes and ears’
of the industry, and believe they are in a strong position to identify any
suspicious activities. Surveyors not only meet the current occupant during the
valuation but also physically assess the property. We believe this places surveyors at the
heart of the risk management process and in a prime position to identify
factors that may add up to a fraud referral when combined with other
information sources.
Conveyancers
As the last line of defence, legal conveyancers have a responsibility
to ensure the transaction is fully transparent.
As ‘gatekeepers’ of the mortgage process, conveyancers undertake
detailed identity verification checks, have a view of the source of funds, and
also have an insight to the property, including a range of detailed property
search information.
There has been some interesting debate over whether the data available
to conveyancers could be used earlier in the purchase process, with obvious
benefits for instance if lenders were able to make use of Land Registry charge
information when deciding how to value a property.
Lenders
Lenders are of course at the heart of fraud detection and prevention
with their profitability directly affected by bad lending, and now a strong
focus from regulators not only on their processes and controls but also on
capital requirements for different categories of lending.
Fraud teams walk a tightrope between ensuring that the customer journey
for the majority remains smooth and trouble free, whilst at the same time
investigating as many cases as possible, making it genuinely tough to gain
approval for a mortgage when criteria are abused or significant suspicion
persists.
The IT systems which today form a key part of lenders’ defences aid
this process by analysing every potential loan at various stages, from the
moment of application through valuation and even the conveyancer’s certificate
of title process.
By analysing both applicant and property data – for example, looking at
previous loan applications or the property’s transaction and listing history –
risk systems can work together to issue alerts if the application meets
specific criteria, as determined by the lender. Detailed investigations can
then be undertaken by the lender’s fraud team before the application is allowed
to proceed.
What this shows is that there isn't a definitive single body that is
responsible for policing, detecting or reporting cases of fraud, and whilst
lenders are clearly driving the process from the centre, each ‘link in the
chain’ has the ability to influence the overall strength of the anti-fraud
toolkit.
Knowledge in this arena clearly equals power, and the provision of new
data driven solutions that intelligently analyse all facets of the proposed
transaction will enable the entire industry to make better informed decisions –
first time, every time.
Richard Groom
Product Development Director
Financial Risk - Landmark Information Group
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