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Warning For Adverse Credit Mortgage Fraud

May 29, 2008
The Financial Services Authority has been slowly ramping up its operations to target mortgage fraud in the UK by gathering enough evidence to successfully prosecute perpetrators. High on the list is fraud involving adverse credit mortgage products. This type of home loan is geared towards borrowers who are most at risk of default and are a prime target for fraudsters.

The FSA has recently urged both lenders and brokers to help the authority fight mortgage fraud. The regulator has limited resources and the scope of fraud in the mortgage market is estimated to be enormous. While the Financial Services Authority has had some success in recent years in discovering brokers and borrowers who have obtain home loans by deception, and in some cases has successfully brought them to justice, more needs to be done to put an end to the rampant levels of fraud within the industry.

There are currently thirty five lenders who are involved in a scheme to assist the FSA in uncovering fraud by passing them information which could be relevant. However more lenders are required to join the scheme to make it the success story that the regulator would like it to be and a majority of the thousands of intermediaries in the UK could be of help as well.

High on the list of products that are prone to illicit activity are self-cert mortgages and adverse credit mortgages. These products tend to be made available to borrowers with little regard for credit checks and proof of income and are therefore perfect for fraudsters. When offered in combination a situation occurs whereby a borrower with poor credit could obtain finance with a severely impaired credit file and without proving their income. It seems comical to think that any lender would issue a home loan in such circumstances, but some have been and the delinquency rates are high.

In fact it is this type of mortgage product that has provided most of the fuel for the credit crunch fire. Lenders were dishing out adverse credit mortgage products as if they were credit cards with a five pound limit before their loan books started going bad. These loan books are worth hundreds of billions of pounds worldwide and lenders are now being forced to write off billions of pounds worth because of their own lax lending criteria.

The past cannot be changed, however, so the focus is now squarely on the future. Because of this the FSA has been busy upgrading its anti-fraud devices in order to do its part in ensuring the credit crunch is not repeated in another ten years time. High on the agenda is stamping out fraud related to adverse credit mortgage products and self-certification mortgages.

By eliminating the possibility for people to obtain home loans by deception the risks of delinquency in the future will be greatly reduced. Achieving this goal will require cooperation from mortgage lenders and brokers alike to ensure that the only people who are approved for mortgages are those who deserve them. With the Financial Services Authority leading the charge this may yet happen.
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