Mortgage fraud makes lenders even more nervous

It’s not much discussed, but mortgage fraud is becoming more extensive and could well be adding to the banks’ current extremely cautious approach to lending.

“There are 101 varieties of mortgage fraud,” says Berry Everitt, CEO of the Chas Everitt International property group, “and the real scale of the problem is only just becoming to emerge, but in most cases the lender is definitely at risk in these schemes. If you add this worry to the restrictions of the National Credit Act, it’s really no wonder that the banks are much more wary about lending than they were previously.”

At a national mortgage fraud seminar held late last year, Absa Home Loans Operations GM Pieter Vorster told delegates that an estimated R300m worth of fraudulent home loan applications had been blocked by the banks. And Greg Salter, the Nedbank Home Loans GM for Special Projects, Risk and Compliance, noted that mortgage fraud was increasingly being perpetrated by international crime syndicates using advanced technology.

“Indeed,” says Everitt, “the FBI recently noted that mortgage fraud is increasingly being favoured by criminals who see it as a low-risk activity generating relatively high returns.”

However, the most common form of mortgage fraud is still income inflation by individuals, that is, the falsification of income and debt information and documentation to help applicants obtain home loans, or perhaps bigger loans than they would otherwise have been granted. This immediately exposes the lender to the risk of non-payment, since the borrower may not really be able to afford the monthly instalments, especially if interest rates rise.

“And it is of course absolutely illegal,” says Everitt, “so anyone who advises the would-be borrower to provide any false information in loan documentation is also putting that borrower at risk.

“Our unequivocal advice to potential buyers is never to be cajoled into making false statements on loan applications, including overstating your income, understating your debt, or lying about the source of your deposit or the nature and length of time of your employment. And if the person helping you make an application insists that ‘everyone else does this’ or that it is ‘quite legal’, ask them to put that in writing. You can be sure it won’t happen!”

Article from: www.chaseveritt.co.za