Mortgage fraud cases soar to a 22-year high

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The Independent Online

Mortgage fraud has nearly quadrupled in the first six months of 2010, KPMG's "fraud barometer" has found, with incidents of deception involving home loans reaching a 22-year high.

The accountancy firm's figures show there were 21 cases of mortgage fraud in the first half of 2010 with a value of £96m, compared to just 18 worth £24m during the same period last year. In fact, the figure for the whole of 2009 was just £77m.

And the company has warned that the picture is set to deteriorate over the coming months as the aftermath of the house-price boom, followed by the credit crunch, results in more incidents being unearthed.

The Financial Services Authority is aware of the problem, and cited the potential for fraudulent applications as one of the reasons for its decision to ban "self-certification" home loans, where applicants don't have to prove their income to obtain a mortgage.

KPMG said that its figures showed mortgage fraud now accounted for more than half of all the frauds committed against the financial sector in the first part of 2010.

One of the biggest cases was worth £50m, involving two solicitors who were charged with commercial mortgage fraud in relation to obtaining a money transfer by deception and dishonesty. In another incident, an estate agent was jailed for six years after attempting to pull off a £2m mortgage fraud by stealing the identities of two homeowners.

Hitesh Patel, a partner at KPMG Forensic said: "The fact that increasing amounts of mortgage fraud are being prosecuted is cold comfort for the financial services industry. Clearly, more of it is coming to light and more will follow. It is highly probable that the issue is far bigger than our figures demonstrate.

"This is a legacy issue for the banks from the pre-recession boom years when house prices inflated, providing the opportunity for fraud. Banks will be hoping that they have uncovered most of their fraudulent loans. But the trend remains upwards and it could be some time before we see the peak."

Overall, the firm's Fraud Barometer, which collates serious cases of fraud concerning sums in excess of £100,000 in the UK courts, found 166 cases of such fraud in the first half of this year. That is the highest number of cases in a six-month period in the 22-year history of the barometer.

The firm said that the cases had a total value of £608.5m.

That is actually down 4.3 per cent on the same six-month period in 2009 when the figure was £636.5m. However, the 2009 figures were inflated by one spectacularly large case worth £200m on its own. In the most recent period, the biggest case was worth £66m. KPMG said that, even without the one-off "outlier" fraud, the average value per case has risen.

Managers in companies were also found to have inflicted far greater fraud damage than their employees. Though there were more employee cases than management ones (47 compared to 32), management frauds had a greater value, at £135m compared with £45m.

Manager frauds averaged £4m per case compared to £1m per case involving employees. "Managers are clearly able to carry out larger frauds due to the positions of greater authority and the trust they are afforded," the firm said.

Professional criminals perpetrated the most fraud during the period – 56 cases were reported at a value of £391m, over half the total amount included in the Barometer.

"Boiler-room" scams also continue to be popular among criminals, particularly with those operating from outside the UK. Such frauds usually involve "brokers" attempting to persuade investors to part with money for shares that are worthless and impossible to sell on, often at inflated prices. The Barometer recorded five cases of boiler-room fraud, totalling £84m.

Government was targeted in 38 cases worth £178m which included tax scams involving benefits, VAT, or carousel fraud. London and the South-east, unsurprisingly, were the biggest hotspots for fraudsters, accounting for half the total number of cases (88) and 81 per cent of the value (£493m).

"Companies who took fraud risk management seriously before the downturn should now be emerging stronger because of it," Mr Patel said. "The discipline that they have subjected their businesses to should help them gain a competitive advantage."

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