Whose Responsibility Is It Anyway?

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

The Calm Before The Storm?

The latest research from CIFAS has identified a decrease in fraudulent cases during 2013. According to the latest numbers from the fraud prevention service, an 11 per cent reduction was recorded from the previous year; which was the first year-on-year decline since 2010.

It’s all very positive news until we learn that fraud continues to remain at a higher rate than ‘pre-recessionary times’, so we still have some way to go.

When looking at why the drop has occurred, it is positive to note that increased investment in fraud detection and prevention technology, including data sharing, has been a key factor. 

It doesn't however mean that fraud has stopped altogether: in fact with more systems being deployed to stop such crimes from occurring, fraudsters are turning their attentions to targets that appear more ‘vulnerable’.   For example, fraud against loan accounts, including secured, unsecured and payday loans went up by 55%.

So, while the overall figures paint a fairly optimistic picture, we must continue to be on our guard against fraud. 

In particular, next month, we see the implementation of the Mortgage Market Review recommendations.   With a host of new rules and procedures coming into force, including greater scrutiny regarding applicants’ affordability, are we in fact simply witnessing the ‘calm before the storm’?

With borrowers having to provide more detailed assurances that the loan is appropriate to their financial circumstances, we will be closely monitoring whether this has an impact on application fraud, such as an upturn in false income declarations or non-disclosure of debts, for example. 

We are working with our lender clients to ensure that relevant fraud alerts are in place on their risk dashboards so any potential impact is identified as early in the process as possible.  This includes attempting to go ‘under the radar’ and instead access funds via Buy-to-Let products, where income verification isn’t a requirement.

Time will tell, however risk-based IT systems are ready and in place to safeguard lenders from a wide range of risks. It will be particularly interesting to see what effect the new regulations have on both mortgage volumes and incidences of application fraud. 

Richard Groom, Product Development Director, Landmark Quest

(www.questuk.com) 

HCA selects Landmark Information Group to deliver Housing Market intelligence, as part of its £4bn housing framework programme

·         England’s national housing and regeneration agency awards contract to Landmark to provide essential, robust property intelligence

·         Data to be used to inform the development and delivery of affordable housing programmes and help the Homes and Communities Agency (HCA) meet its target to realise 150,000 additional homes by 2015

·         Landmark Analytics – formerly Calnea Analytics and part of Landmark Information Group – to deliver strategic market intelligence data to support HCA’s decision making processes

Landmark Information Group, the UK’s leading supplier of digital mapping, property and environmental risk information, today announces it has been awarded a contract by the Homes and Communities Agency (HCA). The contract is to provide property intelligence data to the housing and regeneration agency, to support the development and provision of its £4bn¹ capital investment programme into delivering affordable housing across England.

Via Landmark Analytics – formerly Calnea Analytics – the HCA will have access to a wide range of accurate housing market intelligence, including House Price Index data, average rental price data, bedroom counts and historic transaction information by postcode or area.  By analysing the data as part of its housing delivery programmes, HCA has complete transparency of the housing market in order to make better informed decisions.

The Landmark Analytics’ property database – which is used by HMRC and in models approved by Fitch Ratings and Standard & Poor’s – provides robust market intelligence and includes a wealth of data including 90 million property images, 20 million sold price records, 18 million historic estate agency listings, 2 million energy performance certificates, 3 million floor plans, plus bedroom numbers, estimated internal area and Council Tax banding information.

Simon Short, Team Leader – Spatial and Market Intelligence of HCA said: “The HCA requires robust housing market data to support its decisions. Landmark Analytics met our needs with quality of data provision to support our evidence base.  The Panel assessed Landmark Analytics against a set of criteria and agreed that it provides the best quality and value for housing market data provision that meets our needs.”

HCA is the national housing and regeneration agency for England, with a capital investment budget of around £4bn for the period 2012-15. The agency has a legal duty to improve the supply and quality of housing in England. Its remit includes delivery of a number of schemes including the existing National Affordable Housing Programme, Low Cost Home Ownership including the FirstBuy product and the new Affordable Homes Programme, which includes the Affordable Rent product.   The programme is focused on accelerating the delivery of affordable homes in England with a target of up to 150,000 additional homes by 2015.

Carole Oliver, Business Development Manager, Landmark Information Group said: “We are delighted to be working in partnership with the HCA, providing essential, robust property intelligence to inform the development and delivery of key programmes. Landmark Analytics will provide vital evidence and market transparency on which the agency can base its decision-making processes for the provision of affordable and sustainable housing delivery.”

Landmark Analytics’ is the UK’s only ISO-accredited Automated Valuation Model (AVM) provider and is at the forefront of delivering analytics data to mortgage lenders for use in strategic risk management and fraud prevention programmes.

For further information www.landmarkanalytics.co.uk.  

Carole Oliver

Group Business Development Manager

Starting the Year with a Bang!

We are proud to be kicking 2014 off with some excellent news; we are pleased to confirm that Landmark has reached the shortlist of the FSTech Awards 2014 for the ‘Most Innovative Product of the Year’. The product in question is our ‘Q-Mobile’ property data capture solution, following an entry we submitted that focused on how Connells Survey & Valuation has successfully implemented the software and tablet-based technology to aid its mortgage valuation process.

Connells Survey & Valuation has embedded the Q-Mobile software and tablet technology across its business, nationwide.  The technology is the latest development in Connells’ strategy to extend its mortgage valuation report validation, efficiency and quality. Adopting Q-Mobile and Panasonic Toughbook devices is part of Connells’ planned next-generation service delivery and moves to dramatically reduce paper-based, manual reporting across the business.

Now into its 14th year, the FStech Awards recognises IT excellence and innovation across the UK and EMEA financial services sector. To therefore be recognised by the judges and reach the shortlist is a fantastic achievement. 

Winners will be announced on 27 March 2014 and so we look forward to hearing the final results then. http://www.fstech.co.uk/awards/shortlist.php

Conveyancing and Fraud

"Having worked with the mortgage industry for many years developing system-based anti-fraud controls, in particular mitigating valuation risks, the latest area of our research and development programme extends naturally to the area of conveyancing-based risk. 

 

With an appetite for lenders to apply greater rigour to the entire application verification process, it is important to ensure that appropriate checks are being undertaken at every key stage of the process – from application, through to valuation and conveyancing, prior to completion. Additionally we must ensure that systems are linked to automate as much of this joined-up analysis as possible.

 

The current workflow for a mortgage application means that by the time a solicitor is instructed, lenders will have already reviewed the loan application and granted the loan in principle. There are however a number of due diligence safe guards undertaken at the point of conveyancing to further limit exposure to risk or potential frauds and our vision is to deliver a seamless system that automatically analyses risk at each stage of the transaction.

 

Anti-Money Laundering
As well as reviewing a number of warning signs that may suggest a suspicious transaction – such as whether the legal professional has met the client face to face, if the deposit is being paid by a third party, or left over monies from the transaction are being paid to an external party – applying the requirements from the CML Handbook, in addition to undertaking Anti-Money Laundering (AML) checks should help towards identifying fraudulent cases.

 

Whilst legislative AML guidance exists, there is no benchmark to ensure one AML service is comparable to the next and no specific governance in place to ensure that all parties in a transaction comply with the regulations. Plus, there is no easy way to check if an AML audit has been carried out by each professional in the transactional chain. As such, this leaves gaps in the process and makes it potentially possible for fraudsters to take advantage of the system.

 

For example, a fraudster may attempt to beat an electronic AML check if they are providing the correct information regarding another person’s identity and have false documentation that incorporates their own photo. It would then be entirely down to the lending organisation to identify other information disclosed in the application that appears to be out of place and therefore raise an alarm to the appropriate parties.

 

Identity Fraud
Unfortunately, the fraudulent use of identity data is on the increase. The UK’s fraud prevention service, CIFAS, released its ‘FraudScape Bulletin’ in August, which backed-up this very point. The half-yearly insight into the latest fraud-related trends identified that of the 113,980 cases recorded for the first half of 2013, two out of every three frauds (66%) were as a result of identity theft.

This compares to application fraud (at 18%) and misuse of facility (at 15%). In fact, in the previous year, CIFAS confirmed that over 150,000 cases had an identifiable victim illustrating the true scale of this problem.

 

When it comes to cases of identity fraud that lenders and conveyancers need to be aware of, typical mortgage cases include examples such as unencumbered fraud. This involves someone attempting to access funds using a property that has no mortgage linked to it. So, this could be an empty property, is part of a deceased person’s estate or perhaps has an absent landlord. The perpetrator, using false identification, seeks to access a low-LTV product and hopes to keep under the radar by applying for a low-risk mortgage, using identification that matches those on the deeds of the property in question.

While the Law Society provides practice notes that offer guidance on how conveyancers can protect themselves against such risks, we are also working with nominated Compliance Officers for Legal Practice (COLPs) within conveyancing firms to assess ways in which the due diligence and AML checks can be automated and integrated earlier in to the risk management analysis process.

 

By eliminating the loopholes that fraudsters are exploiting we believe that a joined-up approach that electronically evidences the outcome from the varying AML suppliers is an important step forward. Removing paper-based searches and automating the entire process will provide greater assurances earlier in the process.

 

Alerting Tools
In addition, we are working with a number conveyancing panel managers and third party risk management firms to create new alerting tools that automatically analyse applications at each stage of the process – from applicant, valuation, to legal completion – to provide integrated risk management that systematically checks for discrepancies at every step of a mortgage transaction and links the professionals involved to further guard against 3^rd party involvement.

 

Based on the latest figures from CIFAS, it would seem that fraudsters appear to have the brazen ingenuity – and downright fearlessness – to continue to deceive lenders by hiding behind stolen identities, and therefore we must continue innovating with new alerting tools and technology innovation that prevents as many attempts to defraud as possible.

 

As technology continues to evolve, we believe that the tide will start to turn as fraudsters have ever fewer loopholes to exploit due to transactions being made more transparent and key data intelligence being shared from one professional to the next involved in the property transaction."

Richard Groom, Product Development Director, Landmark Information Group

As published in the September edition of Mortgage Finance Gazette magazine

The Buy-to-Let Boom

According to the Council of Mortgage Lenders, the Buy-to-Let market has recorded a five year high following a buoyant quarter from April to June, whereby lenders advanced 40,000 buy-to-let loans worth in excess of £5bn. Year-on-year, the number of landlord mortgages has increased by 19%, while the value of such loans increased by a significant 31% - with loans in the same quarter of 2012 worth £3.9bn.

These statistics paint a clear picture of how buy-to-let lending has become an area of remarkable growth for the mortgage industry, while residential loans struggle to match the steep upwards trajectory. In addition, with the Bank of England confirming that interest rates will stay low for a further three years, we anticipate that the popularity of buy-to-let will continue to grow as investors look for more attractive returns via rental property, in place of cash savings.

Taking all this in to consideration, we do need to remain mindful that where there is a boom, it also carries an increased level of risk, as unscrupulous individuals may look to capitalise on the availability of such products.

In particular, with the FCA imposing universal income verification checks on all owner-occupied mortgages, and the demise of self-certified loans, lenders must remain extra vigilant towards misuse of buy-to-let mortgage products. The reason for this is that as individuals look to circumvent any authorisations imposed on owner-occupied loans, they may look elsewhere to instead fraudulently gain access to mortgage products for which they may otherwise not qualify.

This issue, known as ‘let-to-live' is becoming a growing concern. With the increasing availability and take-up of buy-to-let mortgages, lenders must take steps to ensure they have measures in place to analyse cases that match a predefined risk profile and halt any attempts at accessing funds without proper affordability checks.

We are already working with a number of lenders who have integrated let-to-live alerts into their Q-Guard risk dashboard. By creating the ability to electronically assess any application that meets a set risk profile, lenders can automatically identify any transaction that is outside of its lending policy and act accordingly."

Richard Groom, Product Development Director, Landmark Information Group

Valuation – capacity and fraud control

Having focused last month on lenders’ use of property data to manage valuation selection and therefore capacity issues, it has been interesting to see the media focus on the issue as mortgage brokers and consumers feel the effects of longer turn-around times in areas of peak demand.

Peter Bolton-King, Residential Director of RICS, last month commissioned an enquiry to consider the challenges facing property valuation, and a BBC radio programme focused on supply and demand fluctuations driving valuation fees downwards.  It is clear that this trend will reverse in today’s environment of raised professional indemnity costs and rising demand as the heat is felt of a market on the rise.

In the same BBC programme, Richard Sexton, Business Development Director at e.surv was keen to place matters in context, rightly pointing out that the large panel managers who service the majority of mortgage lenders still have average valuation turn-around times measured in days not weeks, which in the overall framework of a home move likely to take several months, will only impact consumers in a small minority of exceptional cases.

Surveyors are particularly focused on process improvements, and recent experience of rolling out our mobile technology platform amongst over 1000 of the country’s busiest valuers has shown that efficiency improvements are achievable, which combined with an industry wide recruitment drive is growing overall capacity.

So, whilst industry capacity is a concern, and something the lending community is particularly live to, it’s clear that between data driven decision making and technology driven efficiency in the surveying process itself, this is an issue which can be managed effectively.

Landmark Quest, part of Landmark Information Group, continues to work with both lenders and panel managers to ensure that whilst solutions are targeted at assisting with capacity concerns, they also have a keen eye to ensuring a risk-based approach can be demonstrated to regulators.  In addition to this we find ourselves applying a wider range fraud detection and control to all of our clients’ solutions as it becomes key to show that whilst some of the market excesses of the noughties appear to be returning, systems and controls are now available to ensure risk is absolutely minimised.

Richard Groom

Product Development Director, Landmark Information Group