Steps by some of the main lenders to push home owners down the route of
only using certain solicitors has caused concern within the legal sector and
has also led to increased expense for the consumer. The main reason for this action seems to be
the aim of the lender to reduce mortgage fraud.
Lenders take the view that by reducing the panel of solicitors
undertaking mortgage work, and thereby monitoring those solicitors more
closely, this will help to reduce the risk of mortgage fraud.
The suggestion is that sole cause of fraud lies with solicitors who handle residential transactions. I accept there
have cases of fraud involving lawyers and other professionals and I also acknowledge
that lawyers have access to large sums of money in handling this type of work. The question is however can all of the
incidents of fraud costing the industry over £1bn be attributed to the criminal
activity of a small number of lawyers. Is
it also fair to use mortgage fraud as an excuse to restrict mortgage work to a
limited amount of property lawyers at the expense of higher moving costs and a
decline in conveyancing services?
In looking at these questions one must begin to understand from where the
bulk of the fraud originates. Surprisingly
(or perhaps not), the majority of fraud stems not from crooked lawyers, but
from individuals misrepresenting their personal circumstances. In fact over 90
per cent of attempted mortgage fraud in 201l was down to this failing.
Experian Identity & Fraud has revealed that fraudulent applications
for mortgages increased by eight per cent in 2011, marking the fifth
consecutive year in which the rate of mortgage fraud has increased.
Experian explain:
‘Around 34 in every 10,000 applications for mortgages were found to be
fraudulent in 2011, compared to just 15 in every 10,000 in 2006. . Typically,
these first party frauds involved falsifying employment status or financial
information, and, most commonly, attempting to hide an adverse credit history’.
This would clearly suggest that, although I accept solicitors acting for
lenders needs to be vetted and monitored, lenders should be doing more to stamp
out the fraud which happens at the beginning of the process when the
application is completed and often submitted by the applicant's independent financial adviser.
In a recent press release from the Council of Mortgage Lenders talk of a new scheme designed with this very aim in mind. The CML explains:
“….. the launch of a new mortgage verification scheme in September was
the culmination of many months of carefully co-ordinated work we under took
with HM.Under the scheme, lenders receiving mortgage applications that are not
supported by adequate evidence of the declared income, or where fraud is
suspected, can submit details via a secure link to HMRC. The tax authorities
check the details that have been supplied to the lender against their own
income tax and employment returns, helping to expose applications based on
bogus claims about earnings or working history’.
The indicators are that some of these measures are working and as the
CML reports mortgage fraud is now on the decline though I suspect that not much
of this can actually be tied in with the rather inexplicable decision of
lenders to arbitrarily restrict mortgage work to the exclusion of a large number of honest and hardworking property
lawyers.
Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk
