Mortgage Fraud Increasing
The Sunday Age
Sunday September 14, 2003
The rapid expansion of the mortgage-broking industry has led to a sharp rise in home loan fraud and again raised the need for industry regulation, according to the director of Macquarie Banking and Property Group, Bill Moss.
Mr Moss told a conference in Sydney last week that banks had essentially outsourced the distribution of their mortgages. He predicted that brokers would control 50 per cent of the home loan market by 2006.
A recent report to the Australian Securities and Investments Commission from the Consumer Credit Legal Centre found mortgage fraud accounted for 13 per cent of all financial institution losses, which were usually recouped through higher fees and higher interest rates.
The head of Macquarie Mortgages, Mike Barrett, said competition between banks to reduce processing times to less than 48 hours had contributed to the proliferation of fraudulent loan applications.
A recent investigation of a Sydney-based mortgage broker uncovered 10 fraudulent loan applications that included forged pay slips, falsified letters of employment and forged PAYG statements.
``The problem we have here is with rogue brokers, who are submitting false applications supported with fabricated documents to get loans for people that can't afford them and then charging these people some pretty horrible fees," Mr Barrett said.
Macquarie Bank's investigation also found evidence of collusion between mortgage brokers, accountants, financial planners and real estate agents.
``In the end, this is a problem all banks will have to fix together, along with the brokers themselves. The problem is too big for regulators, police or law makers alone to tackle," Mr Barrett said.
The chief executive of the Mortgage Industry Association of Australasia, Phil Naylor, conceded that the rapid growth of the mortgage-broking industry had led to an increase in fraudulent loan applications.
A disciplinary board established by the MIAA a month ago had already investigated six cases of misconduct, but was powerless to act against non-members.
Last month state consumer affairs ministers met to discuss a national licensing system and the possibility of expanding the Financial Services Reform Act to cover the estimated 8000 mortgage brokers across the country.
But a lenders' industry meeting, which included the major banks, agreed to renew efforts to exempt mortgage brokers from the Financial Services Reform Act.
In the US market, where almost 70 per cent of all loans were written by brokers, 3.5 per cent of all applications were fraudulent. In Australia that would equate to 1800 fraudulent home loans each month, according to Mr Barrett.
© 2003 The Sunday Age
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