Unfortunately, we have seen an alarming increase in mortgage fraud recently, particularly relating to income fraud.
A number of cases have been presented that advisers may have prevented with better due diligence.
Staged income is one area we have seen an increase. For example, a customer has got a recent wage rise which is quite a big jump in income and happens to be the amount they need for the affordability to work. Often there is a family connection, e.g., they work for a family business, making it ‘easy’ for applicants to receive a temporary wage increase which is not real.
Another area is around second jobs, e.g. a recent second job has been taken, with the income needed for affordability. Often the amount of working hours in total is not plausible, and/or they have been employed by a family member.
Lenders are sharing more and more risk data and also looking at applications post-completion. They will check, for example, with the client’s bank if the income has been and continues to be received at the level declared on the application.
Application flags
When there are any flags on an application, e.g. 2nd job, the employer is far away from the applicant’s home, a big pay rise, employed by the family, the applicant appears to earn more than the employer, then the lender will increase the questions and documentation requests. This can indicate there is a concern. Of course, just because there is a flag, does not mean this is not a genuine application. You can avoid any misunderstanding by making sure when the application is submitted that more detail explaining the applicant’s circumstances that may mitigate the risk, is provided upfront.
It’s incredibly important to respond to any requests from the lender for documents, even if the case is not proceeding. Make sure you tell the lender exactly the reason why the case is not proceeding. Failure to do this can mean the lender attaches a suspicion against the case and the adviser, where there is not one.
Sending a client’s application to multiple lenders to see what ‘sticks’ will also earn you a red flag from a lender, which is why this is not tolerated by the Network. As will continuously misunderstanding the lender’s criteria and submitting cases outside of their policy.
Lender Expectations and Panel Removals
The lender expects an adviser to know their customer and complete detailed due diligence on all information and documentation with due care and knowledge. Fraudsters can be quite sophisticated, which is why we created the ‘risk checks’ on OMS to help guide you on what to look out for. Every time a lender blocks a potentially fraudulent application that you have not spotted, this increases the lender’s risk. If this continues, or if post-completion fraudulent cases are uncovered, the broker will be removed from the lender’s panel.
If you are removed from one lender’s panel, this information is shared with the FCA and other lenders, and you may be subject to further panel removals from other lenders simply because of the first lender removal.
This means the Network would have no alternative but to terminate your contract, and you will no longer be able to submit any mortgage business.
Further information and training
Liz recently wrote a blog which can be seen here
More information and training can be found in LMS, and both the compliance and member support teams can assist with individual case queries.
HSBC are also running a virtual fraud training session on Wednesday 31st May at 9.30am, you can register here
Kind Regards
Alan Baldwin
Director of Compliance