Julian Knight: Our mortgage free-for-all opened the door to crime

The news that the City of London Police made nine arrests last week over an estimated £40m mortgage fraud came as no surprise.

I won't comment on the case – and all those arrested have now been released on bail – but it tells a tale of the times we have just lived through.

The housing market from around 2003 onwards was almost entirely supported by mortgage expansion. Len-ders and brokers were desperate to keep writing business and hitting their targets, so they would think of ever more sketchy ways to go about things. From "drive by" valuations to the notorious 125 per cent mortgage, it was a time of immense greed with the moral compass of the Wild West. And for fraudsters, there is no better "mark" than a greedy individual or company. Throw in lenders' almost non-existent internal checking systems and a regulator with absolutely no bottle to intervene and you have a heady money- making cocktail for the criminals.

And some of the frauds weren't even that sophisticated. Recently, the head of lending at one bank told me that he believed some staff allowed loan applications which they knew were at best dodgy and at worst downright fraudulent. It was a culture of don't ask questions, earn your bonus and keep the business coming in, otherwise it would go to a rival.

We will probably never know precisely how much was trousered by fraudsters at the tail- end of the property boom, but I'd bet my house it was in the many hundreds of millions.



The new ferocious FSA

But rest easy, nothing like it will ever happen again, as Hector Sants of the Financial Services Authority told the world last week that the City needed to "be frightened" of the FSA.

We will have to see if the weak- willed and bloated regulator really can morph into Rambo, saving consumers and striking fear into the hearts of banks, brokers and fraudsters. Read his speech through and it's full of the usual jargon on "principles-based regulation". Personally, I'm very "frightened" about the FSA, but not in a way Mr Sants would appreciate.

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