Page last updated at 12:28 GMT, Wednesday, 20 May 2009 13:28 UK

Rising fines for mortgage fraud

Door knocker
The FSA warns that it will come knocking for mortgage fraudsters

The amount of fines levied by the City watchdog against individuals for mortgage fraud has already overtaken the levels for the whole of 2008.

Fines handed out by the Financial Services Authority (FSA) against individuals totalled £302,445 in the first few months of 2009.

In addition, nine orders have been made banning individuals or brokers from the mortgage industry.

The figures mark an acceleration in the crackdown on the problem.

Inflating income

The most common form of mortgage fraud is inflating the income of the applicant. Sometimes this is with the customer's consent, sometimes not.

Some of the seismic shifts in the market in the last couple of years mean everyone must be aware of new threats
Bernard Clarke, CML

This may be done by exaggerating overtime estimates, by inventing an evening job, or even by including forged payslips in the application.

The advantage to the customer is a bigger mortgage for a bigger property. The broker wins a larger commission.

In an interview with the BBC News website almost a year ago, the FSA's Jonathan Phelan described the fraud as a "heinous crime" and vowed to rid the industry of it.

The FSA took over regulation of the mortgage market in October 2004 and in the last 18 months it has stepped up the pressure against fraudulent brokers who were operating during the booming market.

In 2007, just five bans were handed down. This rose to 29 last year, with four individuals fined a total of £289,500 and ten firms fined £216,000 in total.

A spokesman for the FSA said that the crackdown had provided a "credible deterrent" to those considering getting involved in the practice.

He said that whistleblowers within any fraudulent firms, other lenders, and individual mortgage applicants were all key to spotting cases.

Lenders' responsibilities

Growing databases of authorised and banned brokers were also key to preventing re-entry by banned operators into the mortgage market.

Bernard Clarke, of the Council of Mortgage Lenders (CML) said that lenders were being encouraged to be vigilant.

"Some of the seismic shifts in the market in the last couple of years mean everyone must be aware of new threats," he said.

New types of potentially fraudulent activity - such as false valuations of new-build flats - came into play as the dynamics of the market changed, he warned.

Developers and builders must reveal if they have offered buyers incentives, such as cash-backs, fitted kitchens or paid-for legal fees.

Lenders are worried these incentives have led to some properties being sold for more than they are worth and paid for with over-inflated mortgages.

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