Mortgage lenders urged to shop fraudulent brokers » Bill Payments » 24dash.com

Mortgage lenders were today called upon to act as whistle blowers and alert the City watchdog to brokers they suspected of committing fraud.

The Financial Services Authority (FSA) said mortgage fraud was a "serious" and "widespread" problem and it urged lenders to play their part in tackling it.

But it said despite an industry-wide initiative, only one-in-four lenders was passing on information about brokers they suspected of being involved in fraud.

The regulator said it was also considering changing the rules so that individual mortgage brokers and intermediaries had to be approved, rather than just the firms they worked for.

The FSA said a project set up with the Council of Mortgage Lenders (CML) in 2006, under which lenders reported brokers they suspected, had proved successful.

Lenders have so far submitted more than 300 reports, allowing the FSA to take action against dozens of intermediaries, with sanctions ranging from enhanced supervision to bans and fines.

The FSA said the project had contributed to the number of mortgage brokers who had been banned soaring to 17 so far this year, compared with just six during 2007 and only two in 2006.

But it said that out of the 150 mortgage lenders operating in the UK, only 35 had taken part in the initiative.

It is working with the industry to encourage more lenders to sign up to the scheme, and it is upgrading its systems to cope with the anticipated increase in its workload as a result.

Other initiatives to tackle mortgage fraud by the FSA include carrying out targeted visits to 200 mortgage intermediary firms.

It is also enhancing the way intelligence is used in supervising firms to look for patterns in mortgage fraud to help it target its resources.

The watchdog also plans to work with other regulators and law enforcement agencies, such as the National Fraud Strategic Authority, City of London Police and regional police forces.

It said these collaborations would help it spot mortgage fraud at all levels, ranging from corrupt individuals acting alone, to criminal groups exploiting the mortgage market.

Philip Robinson, director of financial crime and intelligence at the FSA, said: "Mortgage fraud is a serious and widespread problem. We have set out our approach and expect the industry to do its part in tackling this menace.

"Brokers should make sure that they provide suitable advice and that their businesses cannot be used for the purposes of committing fraud.

"Lenders must also have in place systems and controls to identify and reduce fraud, and continue to provide us with the intelligence which is key to success in this area."

There are fears that mortgage fraud could increase in the current economic environment, as brokers struggle to make a living due to falling demand.

CML director general Michael Coogan said: "We welcome the FSA's focus and practical approach in this area, and we expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud."

The CML said it had taken various steps to help reduce fraud, including changing the way new build properties were valued. It plans to run a conference on fraud in the autumn.

It is also working with anti-fraud groups to try to develop a cross-industry system to analyse mortgage applications to help lenders spot fraud.