The FSA recently published a report on how lenders manage the risk posed by mortgage fraud. Although it is rather too late to close this particular stable door, the report does contain useful information for both (1) lenders (who wish to benchmark their own procedures against what the FSA has found to be good practice) and (2) firms and their insurers facing claims arising from mortgage fraud who can compare the historic practice of lenders against the examples of poor conduct identified by the FSA.
The relevant findings include:
- Evidence that in some cases the remuneration structure of lenders (eg paying bonuses for volume of sales) discourages rigorous monitoring of fraud risks
- Evidence that ‘fast tracking’ of loans (remember the offers of ‘mortgages in minutes’?) may cause lenders to override or bypass fraud monitoring
- The FSA reviewed lenders ‘anti-mortgage fraud systems and controls’ and ‘relevant extracts from financial crime risk assessments covering mortgage fraud’ and ‘relevant internal audit reports’ in reaching their conclusions – the report provides a useful roadmap for disclosure requests
- Evidence that the training programmes of lenders often lacked material which focussed on the risk of mortgage fraud
Whilst much of the report is generic, it does provide useful areas for those defending lenders’ claims to explore – areas (such as remuneration structures and internal training) in which lenders have been astute to avoid providing voluntary disclosure. Lenders may now find it more difficult to resist such disclosure requests.
But, before firms and their insurers get too excited, the guidance will only be useful in establishing contributory negligence discounts if the solicitors, surveyors or mortgage brokers have not been complicit in the mortgage fraud.