Mortgage fraud rises 18%

The number of fraudulent mortgage cases rose 18% in 2010 to 3,542 compared to 3,004 in 2009, driven by a leap in application fraud.

Research by CIFAS, the UK's fraud prevention service, revealed application fraud jumped 27% in 2010 and now accounts for 96% of all mortgage fraud.

By comparison, identity fraud and misuse of facility fraud within the mortgage sector dropped back over 2010, by 59% and 47% respectively, to similar levels as recorded in 2008.

The majority of the rise in mortgage fraud over 2010 occurred during the first half of the year, before falling back 14% in Q3 and 9% in Q4.

The CIFAS research found 69% of all mortgage fraud was introduced by brokers, which it said was often down to mortgage cases being conducted at a distance, with the adviser never meeting the applicant face to face.

The CIFAS report revealed that, overall, the total amount of financial fraud dropped 7% in 2010.

However, mortgage fraud appeared to stabilise in 2010 after sharp falls in 2008 and 2009. CIFAS said the overall increase could be down to various reasons, including struggling brokers turning to fraud to keep their businesses afloat in the economic downturn.

It said this could simply be brokers changing clients' incomes in order to obtain a mortgage and highlighted applicants in such cases were not necessarily working with the broker.

In addition, CIFAS said the rise in mortgage fraud could be attributed to lenders increasing their scrutiny of applications and the lag-time involved in identifying cases, with fraud only being uncovered as properties bought during the boom years are abandoned or the account falls into arrears.

CIFAS said the rise in application fraud was in line with expectations falling house prices and tighter lending criteria would expose falsified mortgages, particularly where applicants have lied about key information on the original form, such as salary.

The increase in mortgage application fraud was often down to applicants hiding adverse credit data or past convictions, CIFAS found.

Its research showed 43% of mortgage application fraud related to borrowers attempting to hide adverse credit linked to an undisclosed address, up from 30% in 2009.

In a further 22% of cases, applicants simply did not reveal bad credit history, while examples of false employment details rose to 8% in 2010 from 5% in 2009.

Richard Hurley, CIFAS communications manager, says: "While the small decrease in fraud identified in 2010 is welcome, the threat has not gone away, and it must be viewed in its proper context: as the latest in a series of changes that have taken place over several years."

He adds: "Fraud is a pernicious crime whose effects are widespread and whose prevention can only come about through cross sector collaborative measures.

"The findings presented in our report can be considered a tip of the iceberg in terms of society at large, thus proving clearly that industries should not operate in silos, and other sectors would also benefit from pooling their resources in order to stop fraud."