The FSA says it will be stamping down on the 'widespread' problem of mortgage fraud in 2008.
The regulator's warning comes in response to a banned broker’s claims that most brokers have falsified incomes.
Tahir Mahmood and Amjad Malik were banned from conducting regulated business on Wednesday after the FSA found them guilty of falsifying incomes on mortgage applications.
Yesterday, Mahmood contacted IFAonline saying most brokers have submitted false income details for clients in some circumstances, provoking outrage from many brokers.
However, the FSA says it believes fraud is a major issue in the industry, as indicated by Philip Robinson’s speech to the Council of Mortgage Lenders (CML).
The FSA says it is stepping up its efforts to root out fraudsters and an FSA spokesman says: “2008 is going to be a big year for enforcement in terms of mortgage fraud.”
However, a former compliance director for Home & County Mortgages, Mike Inkley, says the FSA has been slow to react to cases in many instances.
While working for Home & County, Inkley says he submitted a number of files to the FSA where incomes had been falsified. He says the FSA took four months to respond to the case and the firm was fined just £52,500, despite Inkley’s claims that fraud was widespread at Home & County.
Commenting on the issue of enforcement timeframes, an FSA spokeman says: “We receive a great number of cases but our enforcement resources are finite. Unfortunately, if a big case comes up them some smaller cases might have attention diverted away from them.”
The FSA says it is already investigating over 200 cases and expects many more to be referred in the coming months.
However, many brokers insist the problem is isolated to a small number of brokers who do not respect the law or their clients.
Commenting on Mahmood’s suggestion that lenders should offer 10 times income multiples, Chris Clare, a broker at Mortgage Route, says: “This man tries to infer that he is in some way providing a benefit to these clients by getting them 10 times income and as such is doing nothing inappropriate.
"I want to say now to all advisers that don’t already realise, this is a fallacy. Putting people into a mortgage that is upwards of 10 times their income is not beneficial to them.”
However, some brokers have welcomed the FSA’s crackdown, saying it will prevent fraudulent brokers gaining an unfair advantage by submitting false income details.
Paul Clift, of GSS Financial Planning, says: “I have no great love of the FSA but all I have ever wanted was a level playing field and the cheats removed from the system and now it looks like it may happen and a good thing too.
“Then the lenders will have to be honest with their products and income multiples rather than turning a blind eye but doing a "nothing to do with us guv it's these dodgy brokers" if it all goes wrong and the media or government start investigating.”
Inkley believes more needs to be done to verify incomes, particularly for self-cert mortgage applications.
“There is currently a big loophole in the industry where many lenders do not check references on loans of 65% LTV or less,” he says.
“I think it would be prudent for lenders to check all references and to ask for a tax reference number on applications forms. These steps would probably result in considerably less fraud.”
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