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fraud overview
Mortgage fraud costing lenders millions of dollars...
Mortgage Fraud is a rising concern in the Australian
Lending Market and whilst no statistical data is available
on the outlay of fraud, anecdotal evidence suggests it has
cost the Australian banking and finance industry millions
of dollars per year.
Mortgage Fraud doesn’t just impact lenders; it is costly for all
stakeholders involved in mortgage lending, including borrowers,
originating parties (aggregators, brokers, mortgage managers) and
mortgage insurers like QBE LMI.
QBE LMI has a dedicated Fraud & Investigations team that works
towards identifying fraudulent activity in the market place and provides
insights into effective ways to protect against fraud. Through our
relationship with multiple lenders the Fraud & Investigations team has a
360 degree view of these lenders; linking fraudulent activity and providing
mitigations against future fraud.
The investigations team works with different lenders to gather evidence,
evaluate documentation, investigate suspicious matters and conduct
interviews with underwriters to gain insights into the application process
and where it failed to identify fraud.
The team is then able to collect the information and identify correlations
in fraudulent borrower activity across multiple lenders. An example of this
collated information includes our database of ‘companies or individuals
of interest’ which helps lenders scrutinise applications and detect fraud
before it occurs.
What is QBE LMI seeing in the market?
they are contacted by a bank chasing loan repayments.
Increase in multi Lender fraud
A number of different lending institutions are being targeted
simultaneously as specialised criminal rings gain inside knowledge
of lending practices. These criminals know how to manipulate the
system for their own means and quite often these rings include other
intermediaries including real estate agents, solicitors, valuers, developers,
accountants and originators.
Various lending institutions are also viewed as ‘easy’ targets and are
continuously penetrated by criminals.
These criminals also adapt quickly to improvements in identifying their
activity (i.e. technology) and travel down the path of minimal detection.
Falsified companies, documents, and straw buyers (somebody who
purchases property for another person in order to conceal the identity of
the real purchaser) are used to take advantage of lending institutions.
A recent investigation by our team identified four separate lenders which
were all being targeted by the same fraud ring.
The lenders, one bank and three mortgage managers were initially
recognised by the team as having significant claims exposure. Complex
(but traceable) links had been sourced across the four lenders as straw
borrowers were used to create fraudulent loan applications.
As expected, the fraudulent borrowers had the support of a number
of intermediaries during the application process. Links were identified
through historical company director searches and with the main players
still active in the market, our intelligence had assisted in identifying live
fraudulent applications with these and other lenders.
Syndicated, organised fraud is on the increase
Fraudsters are becoming more sophisticated and mortgages are viewed
as a reasonably easy target. The mortgage industry is seen as more
lucrative as the amount of money the criminal can acquire is much
greater.
Organised criminal rings are manipulative and work towards pilfering the
identities of people who own their properties which are unencumbered.
Criminals acquire loans masquerading as these people and using their
property as security. Victims are unaware they have been targeted until
Tips for Managing Fraud: Early Warning Signs
The following red flags have been identified by us. They should flag concerns with mortgage applications and ensure they are looked at more
closely.
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No agent involved in the sale process
Gift required to facilitate the transaction
Suspicious looking documents including bank statements, income documents (font size doesn’t match original, BSB number doesn’t
match branch, spelling mistakes, totals on bank statements are inaccurate)
Identification of inter-related parties (vendor’s agent has same surname, de-facto relationships, company searches)
Additional parties between the borrower and the insured lender involved in the origination of the insured loan / insured mortgage
Highly suspicious income and age correlations
Early payment default
We also recommend that individuals go with their ‘gut instinct’. If a document looks suspicious or an application looks dubious they should
investigate it further.
Sydney continues to be the biggest hotspot
Over 75% of fraud investigations conducted by QBE LMI are based in
Sydney. A number of these suspected fraudulent loans have been linked
to addresses predominantly in West and North West Sydney.
Recent large scale syndicated fraud investigations conducted by QBE
LMI found fraudulent securities of apartment blocks throughout Sydney
were being used. Lenders were lead to believe that they were owneroccupied purchases, however, they were all tenanted and the rental
funds were sent off-shore.
The fraudsters were known to QBE LMI and utilised straw buyers as the
vehicle for purchasing the properties and most of the parties involved
were linked either via addresses, employers, family and friends.
The investigation also showed that not all of the funds were used to fund
the purchase of the property with disbursements to originators, brokers,
borrowers and companies linked to the fraudsters.
Falsified documents – large scale ‘templating’
Graphic design software has allowed the production and submission of
high quality, authentically designed documents to fly well under the radar.
Our investigations team has also seen a number of fraudulent templates
being created and used across multiple lenders. The templates are
easily executed with the purchase of expensive art work to ensure
documentation looks like the ‘real deal’.
Documents such as licence and ID documents, tax returns, financial
statements, deposit verification, and credit reports are undetectable by
lenders.
Victims of Mortgage Fraud
Major fraud is a target-based business. We have found the victims of
these criminals typically include;
Recent immigrants to Australia - they are new to the country and
not completely aware of the lending practices and the law. They are
also trying to settle into the country and when presented with the ability
to access their own home sooner than expected and they jump at the
chance.
Elderly borrowers - Elderly borrowers are usually looking for
opportunities to assist them in their retirement. They are manipulated
into thinking that they will be able make money quickly by investing with
the fraudster. They also seen as a profitable target by criminals as elderly
borrowers have unencumbered homes and a large asset base.
Lower socio-economic segments of the community - These
segments generally have poor education and low to no income. The
idea of home ownership is usually not in their immediate plans however
fraudsters target them and present them with quick and easy ways to
own their home sooner and they unfortunately take up the opportunity.
Fraudsters indentify these groups through social forums including church
groups and community centres or social groups and some targets are
also family and close friends of fraudsters.
Targets are also pursued through advertising campaigns, or door to door
selling, and selling/advertising at shopping malls. The advertisements are
usually ‘how to get rich quickly’ or ‘grow your finances’.
Know your intermediaries
It is imperative for lending institutions to know who they are dealing with
(at all levels). This includes having sound knowledge of intermediaries
including real estate agents, accountants, lawyers, valuers, developers,
accountants and originators.
QBE Lenders’ Mortgage Insurance Limited
Level 21, 50 Bridge Street, Sydney, NSW, 2000
Phone: 1300 367 764
www.qbelmi.com
Quality Control
Quality assurance procedures are essential to preventing funding
involving fraud. Pre-settlement and post-settlement checks are both
strong measures in preventing fraud.
Pre-settlement checks
 Verbal verification of employment and income
 Carry out independent credit report checks in addition to
document checks
 Ensure loan documentation received is original
 Obtain correct borrower/guarantor identification including photo
identification
 Verify the seller on the contract is the owner on record
 Specify in settlement instructions to the lender’s solicitors if
source of funds should be verified
 Choose referrers wisely
Post-settlement checks
 Have an internal computerised Fraud Report and cross-checking
system which regularly reviews all delinquent files for systematic
relationships
 Check any files that are immediately put into substantial credit
following loan settlement
Technology
Mortgage fraud detection technologies are fast becoming an essential
risk mitigation tool.
Integration of Automated Valuation Models (AVM) into QBE LMI’s core
underwriting process has been achieved through real-time XML interface
for individual applications and via a batch process for bulk lenders’
mortgage insurance requests. For individual applications the underwriters
are notified of an exception when the AVM result causes one or more of
the QBE LMI credit rules to fail.
When an exception is identified the application is escalated to a senior
underwriter who has access to a variety of tools (online comprehensive
property information services and independent professional valuers) to
determine if there are any anomalies in the property valuation.
Industry Cooperation
The financial services industry has a strong role to play in fraud
management. Greater cooperation within the industry and cross sharing
information will upset the flow of fraudulent business.
To effectively deal with mortgage fraud lending institutions need to
monitor customers across all channels and consolidate information in
order to identify evidence of manipulating lending scores and credit
seeking behaviour.
It is also important that lenders constantly review their watch lists and
that they actively participate in industry forums to ensure their intelligence
is up to date as fraudsters target vulnerable entities.
QBE LMI works cooperatively outside of the industry with relevant law
enforcement and regulatory bodies to not only share insights into what
we are seeing in the market but to also gain knowledge and keep up-todate with developments in fraudulent activity.