£100m bill as Yorkshire hit by mortgage fraud surge

MORTGAGE lenders in Yorkshire were hit by a fourfold increase in fraud in the first half of this year, with losses hitting almost £100m, figures compiled by financial experts reveal today.

KPMG's annual Fraud Barometer shows that in the first six months of 2009, mortgage fraud cost banks and building societies just 24m with the total for the year only reaching 77m.

But by June this year the level of losses had already outstripped that by almost 20m, leaving lenders facing a bill of 96m, a figure which is predicted to grow much larger.

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The financial services giant said the fact that the cost of fraud had quadrupled this year showed bad loans made at the height of the property boom were now hitting lenders hard.

Vivien Osborne, a director in KPMG's forensic team in Yorkshire, said: "The fact that increasing amounts of mortgage fraud are being prosecuted is cold comfort for the financial services industry.

"It is highly probable that that issue is far bigger than our figures demonstrate and more will come to light. This is a legacy issue for the banks from the pre-recession boom.

"House prices inflated, providing the opportunity for fraud. Banks will now be hoping that they have uncovered most of their fraudulent loans, but the trend remains upward and it could be some time before we see the peak."

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KPMG's figures show that 21 mortgage fraud cases were reported between January and June, and police fraud specialists in Yorkshire said their case load reflected today's figures.

Several of the cases involved professionals including solicitors and mortgage brokers who colluded with their clients to inflate the value of properties to get more cash from banks.

Graham Wragg, who manages South Yorkshire Police's economic crime unit, said the work of dishonest professionals was often ignored when mortgage fraud cases were brought.

He added: "It does go back to the property boom when people were falsely inflating their income to get mortgages. Now the market has slipped and some are struggling to make repayments.

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"Banks and building societies are starting to discover that they have been duped in the past, and people who shouldn't have ever been lent huge sums of money have slipped through the net.

"Many fraudsters have worked with collusive professionals like valuers who have put a higher price on a property knowing that financial institutions would never check in the competitive market.

"They knew that if they didn't lend, the applicant would go away and get it from someone else. But I have seen awful cases where massive loans have been secured against a garden shed.

"The important point is that it won't be the banks who lose out because of these frauds, it will be ordinary honest people who have not broken the law. Their charges will go up."

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KPMG's report reveals that in one case an estate agent was jailed for six years for dishonesty, while two solicitors were charged with obtaining a money transfer by deception.

A spokesman for industry body the Council of Mortgage Lenders said: "The Council of Mortgage Lenders and its members work collaboratively with many other relevant organisations to tackle mortgage fraud.

"It is imperative that the regulators for conveyancers and valuers, as well as the FSA for brokers, continue to take appropriate action to combat mortgage fraud, as it is collusion amongst professionals that result in the most harmful fraud against lenders."

The Fraud Barometer also reveals that the value of other frauds in Yorkshire increased by 19 per cent in the first half of the year compared to the same period in 2009.

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Ms Osborne said the Barometer found 166 cases nationwide of serious fraud in the first half of this year, the highest in the 22 years since the study was first carried out.

She added: "Companies who took fraud risk management seriously before the downturn should now be stronger because of that.

"The discipline that they have subjected their businesses to should help them gain a competitive advantage."