Ref:22/08 March 5, 2008
POLICE COMMITTED TO TACKLING MORTGAGE FRAUD

Police forces are being handed new guidance on how to identify and investigate organised mortgage fraud with the delivery today of an ACPO intelligence report into the issue.

The report, which is marked RESTRICTED and is not being published in full, has been sent to the financial industry and to forces across the UK highlighting the nature of mortgage fraud. It was commissioned by ACPO following a request from FIN-NET*, a financial crime intelligence unit hosted by the Financial Services Authority. FIN-NET, whose membership includes public bodies with an interest in the detection and prevention of financial crime, experienced a significant increase in reported mortgage fraud during 2007.

Key findings include:

• Mortgage fraud is attractive to criminals because of the current low risk of detection and high profit opportunities. In one case, a fraudster made a profit of more than £10 million*.

• Organised crime groups generate significant income from mortgage fraud and use the cover of property sales to launder the proceeds of their wider operations, including drug supply, human trafficking and prostitution.

Mike Bowron, ACPO lead on economic crime and Commissioner of the city of London police, said:

“Organised mortgage fraud can take many forms and while difficult to measure accurately, remains a significant element of the UK’s annual fraud losses. In sharing this report with the financial industry and police forces nationally we are raising awareness of the problem and how to tackle it.

“Industry groups have started to introduce initiatives with the aim of ‘designing out’ mortgage fraud, and the Financial Services Authority is currently establishing a joint intelligence operation with City of London police and industry to improve knowledge of the scale of the problem and help guide efforts of both regulators and law enforcement.

“ACPO also supports the establishment of a National Fraud Strategic Authority (NFSA) as part of the Government’s Fraud Review Programme, which will significantly assist with coordinating the response of law enforcement and the private sector. Long gone is the notion that fraud is a victimless crime, and through this sort of joint approach we are working effectively to end it.”

The report highlights that mortgage fraud has implications for society, over and above losses borne by the financial sector. It concludes that such activity represents a transfer of asset wealth from the legitimate to criminal sector, regardless of whether a loan is being repaid.

Victims of mortgage fraud range from those who purchase a newly built property – only to find that their home is worth considerably less than they paid for it; through to those on low incomes who, through the actions of corrupt professionals, take on a debt they simply cannot afford.

Whilst there is no evidence to suggest that mortgage fraud directly funds terrorist acts, this area of criminality has been encountered during investigations into UK based terrorist groups. Mortgage fraud can be used to finance infrastructure including ‘safe houses’.

Organised mortgage fraud cannot occur without the criminal activity or negligence of property professionals. Lenders rely on the integrity of mortgage brokers, solicitors, and surveyors to ensure proper oversight of the application process. However, today’s report finds that all those involved in the mortgage chain, including lenders, have a role to play in reducing opportunities for fraud.

Organised mortgage fraud takes many forms, from the overvaluation of ‘new build’ residential properties through to the ramping of commercial property values.

Examples include:

• False valuations by corrupt surveyors which result in higher loan to asset ratios and quick illegal profits.

• Bogus applications predated on false identity documents.

• Applications supported by bogus income documentation, including fraudulent pay slips and P60s – frequently supplied by criminal websites.

• Conveyancing professionals assisting organised criminal groups to secure mortgages illegally.

• Commercial property values being inflated significantly by the use of fraudulent lease contracts.

Mortgage fraud is concentrated in pockets around the UK, with London being the main hot spot (46% of cases).

Mortgage fraud is generally committed by men in their mid to late 30s from a range of social backgrounds.

Organised crime groups operating in this area are often grouped along ethnic lines depending upon their geographical location.

There are inconsistencies in how the value and volume or mortgage fraud is currently measured. This makes it very difficult to determine a true estimate of the size of the problem.

The report has highlighted confirmed mortgage fraud of around £700 million. Whilst this only represents a small proportion of the annual lending market; £370 billion in 2007*, it remains a significant element of the UK’s annual fraud losses.

The Financial Services Authority has for some time been working with lenders to identify mortgage intermediaries who may be involved in mortgage fraud, several of whom have now been subject to enforcement action. A joint intelligence operation with the City of London Police will also involve an ongoing programme of monitoring suspicious mortgage applications.

Industry groups have already started to introduce initiatives with the aim of ‘designing out’ mortgage fraud. This includes the launch of the Council of Mortgage Lender’s guidance for property professions involved in new build sales.

The Metropolitan Police Service is currently undertaking work to disrupt websites providing bogus documentation. There is also provisional agreement for the new National Lead Force for Fraud, the City of London Police, to tackle this area as one of its first priorities.

Key recommendations:

 Organised mortgage fraud to be considered as a higher priority within future Home Office policing plans

 Effective intelligence led initiatives by governing / regulatory bodies, mortgage providers and law enforcement to reduce the threat of organised mortgage fraud

 Development of nationally agreed measurement indicators through which the value and volume of mortgage fraud crime can be assessed

 An automated, preferably online, system of checking all mortgage applications against official records including passports, driving licences, National Insurance numbers, declared income and benefits data

 The creation of a multi-agency Mortgage Fraud Bureau to analyse trends and support targeted investigation. This is to include a National Mortgage Fraud Intelligence Database under the control of a single law enforcement agency

 Regular updates to the mortgage industry and law enforcement agencies regarding current typologies, fraud indicators, geographic ‘hotspots’ and information on organised mortgage fraudsters

 Clear and direct action to be taken by governing / regulatory bodies against property professionals involved in mortgage fraud

 Mortgage industry to produce best practice guidance for lenders regarding the identification and prevention of organised mortgage fraud

 Consideration, by the FSA, of central registration and regulation of individual mortgage intermediaries

 Advice leaflets for customers regarding the mortgage process, helping them to understand the market and recognise warning signs of fraud

ENDS

Notes for Editors

• The ACPO lead on Economic Crime, Commissioner Mike Bowron of the City of London Police, will be available for interviews between 1200 and 1600 on Wednesday (5 March). For interview requests please contact the ACPO Press Office on 0207 084 8946

• The full report is a RESTRICTED document for Police and Industry eyes only. It contains detailed information about the means of committing mortgage fraud which the police would not wish to be placed in the public domain.

• The report took evidence from 47 UK police forces, 45 mortgage providers (representing over 75% of the market), the Serious and Organised Crime Agency, Serious Fraud Office, Her Majesty’s Revenue and Customs, a wide range of government departments including the Identity and Passport Service, 5 Indemnity Insurance companies, the Financial Services Authority, major trade organisations including the Council of Mortgage Lenders, British Bankers Association, the Association of British Insurers, the Royal Institute of Chartered Surveyors and the Solicitors Regulatory Authority.

• The report was compiled by a police analyst on secondment to ACPO.

• The Association of Chief Police Officers (ACPO) is an independent, professionally led strategic body. In the public interest and, in equal and active partnership with Government and the Association of Police Authorities, ACPO leads and co-ordinates the direction and development of the police service in England, Wales and Northern Ireland. In times of national need ACPO, on behalf of all chief officers, coordinates the strategic policing response.

• ACPO’s 341 members are police officers of Assistant Chief Constable rank (Commanders in the Metropolitan Police and City of London Police) and above, and senior police staff managers, in the 44 forces in England, Wales and Northern Ireland, and other forces such as British Transport Police and States of Jersey Police.

• The ACPO Press Office can be contacted via 020 7084 8946/47/48 (office hours) or via 07803 903686 (out of office hours).


* FIN-NET, The Financial Crime Information Network
* http://www.propertyweek.com/story.asp?sectioncode=297&storycode=3104206&c=7
* Council of Mortgage Lenders figures for 2007