Mortgage fraud is the process in which an individual will deceive a financial institution or a private lender who is responsible for the mortgage process, in order to obtain a mortgage or a larger loan than they could have achieved through a legitimate process. Mortgage fraud consists of an individual making false claims and lying on their mortgage application. This process is becoming all the more common and it is important for mortgage authorities and individuals to be aware of when mortgage fraud has occurred.
Why do people commit mortgage fraud?
Currently, it is estimated that around 4 in every 1,000 mortgage applications is fraudulent. So, why is this?
In recent years, mortgage lenders have tightened the process of applying for a mortgage loan, making it harder. Lenders have toughened up on the rules for a mortgage application in general. This includes changing affordability rules and the withdrawal of funding for banks and building societies.
Consequently, to make it easier to achieve a mortgage, fraudsters will lie about some information such as their income. Approximately, 25% of mortgage fraud attempts are conducted through an individual lying about their income. Moreover, 20% of mortgage fraud attempts are conducted through an individual lying about their employment situation, in the hope that it would protect bad credit history.
Mortgage fraud is not only conducted by an individual. More and more organised groups have been responsible for conducting mortgage fraud. The reason for this is that mortgage fraud can be profitable for an individual and relatively low risk, meaning that they can continue to commit mortgage fraud continuously until found guilty.
How is mortgage fraud penalised?
Most of the time, mortgage fraud crimes are discovered and subsequently penalised. The body used to monitor mortgage fraud is a Mortgage Verification Scheme, which is the joint effort of HMRC, the Building Societies Association and the Council of Mortgage Lenders.
Lenders will conduct checks all the time, but there are certain instances which they will investigate further if something appears suspicious. These include actions such as re-mortgages which are registered several times, the sale of the same property, a questionable rise in the purchase price or a mortgage deposit paid by a third person.
Mortgage fraud is subject to the Fraud Act 2006 and as for all forms of fraud, the penalty is decided in relation to the severity of the crime. The accusation of an individual who has made a false statement is an example of mortgage fraud which may receive a low penalty. It may be punished with some community service or a fine, but it most likely won't reach a court hearing.
When there is a large-scale fraud offence, such as a mortgage fraud crime conducted by many different bodies, including the borrowers, associates and professionals involved, the penalty is a lot larger. Due to the extensive investigation which will be conducted, it is assumed that this case will be examined in court.
In January 2018 a mortgage fraud gang have been investigated and subsequently ordered to pay £13 million due to the vast mortgage fraud crimes which they have committed. This fraud gang were responsible for taking advantage of a buoyant property market from 2003-2010 and committing mortgage fraud during this time. This is an example of one the most severe penalties inflicted upon mortgage fraudsters.
Due to the rise in mortgage fraud in the recent years, it means it is essential for individuals to be aware of when mortgage fraud has taken place and how to protect against this.