Mortgage Fraud Analysis Our Work
▪ Reviewed approximately 6,000 residential mortgage losses. ▪ Settled approximately 800 claims against solicitors/valuers. ▪ Recovered circa £45 million. ▪ Engaged directly with insurers, settling majority in group mediations. ▪ Online extranet systems were used to record data and compare claims, trends, patterns and themes. ▪ Cases valued using blend of professional judgment and algorithms. ▪ In structured mediation process, irrecoverable costs were only 2.4% of recoveries. ▪ By-product is a vast database of mortgage fraud trends.
squirepattonboggs.com 2 Study Data
▪ Prime lending (mortgage and remortgage). ▪ 476 frauds were reviewed. ▪ 7 high street banks and building societies.
squirepattonboggs.com 3 Financial Analysis
▪ The average loss from each fraud was £107,814.11. This figure takes into account repayments made by the borrower, the property repossession sale and all additional costs related to the file.
▪ Average advance amount was £202,190.62.
▪ Average repossession sale amount was £80,140.60.
▪ The total approximate loss from all files reviewed was £50 million.
squirepattonboggs.com 4 Types of Mortgage Fraud
▪ Back to back transaction or Sub-sale ▪ Deposit not paid by applicant/unknown source ▪ Related Parties ▪ Incorrect Purchase Price ▪ Undisclosed buy-to-let ▪ Undisclosed Incentive ▪ False Remortgage ▪ No planning permission ▪ Identity theft
squirepattonboggs.com 5 Basis of Claim
▪ The most prevalent type of mortgage frauds were back to back transactions and sub-sales which constituted 34% of all claims.
40 Other types of claim %
35 Identity Theft 3.0 30 No planning permission 2.3 25
20 False remortgage 1.8
% claims % 15 Undisclosed BTL 0.7
10
5
0 Back to back or Incorrect Deposit not Undisclosed Related parties sub-sale purchase price paid by Incentive applicant / unknown source
squirepattonboggs.com 6 The Buyer
squirepattonboggs.com Gender
Male Female Male Female
6% 23%
Fraud Analysis
77% 94%
*Removal of female mortgage mules from 2 bulk frauds involving 2 independent solicitor firms.
41% Real World Position 59%
(“Single Homebuyers Report” (2001) from the Halifax)
squirepattonboggs.com 8 Sole purchaser?
Yes No
10%
Fraud Analysis
90%
40% Real World Position 60%
(Average CML data 2004-2009) squirepattonboggs.com 9 First Time Buyer?
Yes No
5%
Fraud Analysis (purchases)
95%
Real World 40% Position 60%
(CML 2004-2008)
squirepattonboggs.com 10 The Property
squirepattonboggs.com Property Type
80 70 60 50 40 Fraud Analysis 30
% % ofProperties 20 10 0 House House (Semi- House (Terrace) Flat (Detached) Detached)
80
70
60
50 Real World Position 40
30 % % ofProperties 20 10 94% 0 House House (Semi- House (Terrace) Flat (Detached) Detached)
squirepattonboggs.com 12 New build?
Yes No
Fraud Analysis 40% 60%
17%
Real World Position
83%
* Based on the assumption that 75% of new build properties are sold in the year they are completed
squirepattonboggs.com 13 The Mortgage
squirepattonboggs.com Self-certification
Yes No
33% Fraud Analysis
67%
Real World (FSA PSD & Arrears dataset: 2009) Position 55% 45%
(FSA PSD & Arrears dataset: 2005-2010) squirepattonboggs.com 15 Loan To Value
▪ The average LTV across all reviewed files was 85.4%.
By comparison: ▪ The average LTV for new business in 2008 was reported at 67% by RBS and 74% by Nationwide.
squirepattonboggs.com 16 Prominence of buy-to-let mortgages
Yes No
20% Fraud Analysis
80%
15% Real World Position
85%
squirepattonboggs.com 17 Purchase v Remortgage
Remortgage Yes No
11% Fraud Analysis
89%
Real World Position
squirepattonboggs.com 18 The Frauds
squirepattonboggs.com Location
90 80 70 60 50 40 30
% of properties of % 20 10 0 Rural Urban
160
140
120
100
80
60 Number of claims of Number 40
20
0 Leeds Birmingham Liverpool Manchester London Sheffield Southampton squirepattonboggs.com 20 Mortgage Fraud in London
1. 92% of frauds were in East London. London 2. 94% of properties were Flats (67% in the Regions). NW NE 3. 83% were Buy to Let (80% in the 5% 40% Regions). 4. 97% of transactions were carried out by sole purchasers (90% in the Regions). SW SE 5. 74% of borrowers were Male (75% in the 3% Regions). 52% 6. 54% of properties used were new build (40% in the Regions). The incidence of mortgage fraud is higher in the South East of London than in any other region of London.
squirepattonboggs.com 21 Solicitor Analysis
Was the Solicitor “in on it”? Yes No
10%
90%
squirepattonboggs.com 22 Solicitor location
Conveyancer and borrower in different cities? Yes No
32%
68%
squirepattonboggs.com 23 Small law firms
Number of partners
GreaterMore than than 3 3 LessFewer than than 3 3
39%
61%
squirepattonboggs.com 24 One bad apple….
Turnover Number of (£ million) solicitors
Firm A 3 10+ Firm B 30+ 200+ Firm C 3.5 10+
Each firm had more than 3 partners but only 1 partner who was implicated GreaterMore than than 3 3 LessFewer than than 3 3 in fraudulent practices.
27%
73%
* Removal of bulk claims squirepattonboggs.com 25 Conclusion
▪ High risk applications can be identified in advance. ▪ By way of example, male, sole purchasers, buying flats in an urban area with a buy-to-let mortgage account for 26% of the data. ▪ Regulating your conveyancing panel is key to preventing mortgage fraud. In 90% of these cases, we consider the solicitors were to some extent “in on it”. ▪ Lenders should be aware of the heightened risk of smaller law firms but also larger firms with only one conveyancing partner. Consideration should be given to using bulk conveyancing firms and offering incentives to customers or using separate representation.
squirepattonboggs.com 26 Get in touch!
Anthony Taylor Partner 0161 830 5210 [email protected]
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squirepattonboggs.com 28