Bradford & Bingley would have remained profitable in the first four months of the year, despite its rising levels of bad debt and additional writedowns on structured finance investments, had it not been for a £15m provision relating to mortgage fraud losses, the detail of its trading update revealed yesterday.
The beleaguered mortgage bank warned it stood to lose £15m "relating to a small number of organised mortgage frauds". B&B has been targeted by criminals offering bribes to corrupt surveyors, and the bank vowed to step up its "management of panel valuers" in an attempt to prevent further fraud.
However, the bank is far from alone in facing significant mortgage-fraud losses. The Association of Chief Police Officers claimed in March that mortgage fraud in the UK last year totalled £700m. An Acpo report warned one reason for soaring fraud was the low conviction rate for the crime, which has until recently been a relatively low priority for both regulators and police.
The definition of mortgage fraud covers a wide range of offences but regulators are particularly concerned about the way in which corrupt surveyors, solicitors and other agents have been facilitating two increasingly common deceptions in the new-build sector of the property market, which has been a particular focus for the buy-to-let investors in which B&B specialises.
The Financial Services Authority said earlier this year that it had evidence of agents buying properties from developers and then paying surveyors for grossly overestimated valuations, enabling them to sell on almost immediately at a sizeable profit. Such fraud is often not discovered until the innocent buyer sells up, though more cases are coming to light as overstretched borrowers are forced to sell or having their homes repossessed.
The second variation on this theme is that some corrupt agents never pass on mortgage loans to the developer, instead disappearing with the funds. Such fraud can still take several months to come to light in the new-build sector, where there is no chain of buyers and sellers dependent on fin-ance arriving on a given day. In many cases, corrupt surveyors have also been involved, resulting in lenders making much larger advances than the property really justified. "It can take time for the victims of these frauds to realise they have been conned," said a spokesman for the FSA.Reuse content