In June 2011 the FSA produced a thematic review looking at mortgage fraud being perpetrated against lenders and visited a number of mortgage lenders to specifically assess their anti-fraud policies and procedures. One of the findings was summarised as “While the majority of firms had systems in place to track and manage mortgage arrears, few lenders were exploring ways to link mortgage fraud considerations into their arrears management practices”.
It is understandable that the first priority is to collect the outstanding arrears, but without giving sufficient consideration to the reasons why the arrears had occurred in the first place, lenders have potentially left themselves open to criticism that they were not doing a complete job.
In more recent times, we have been asked to comment on lenders’ collections processes to assess whether the lender acted reasonably in its attempts to mitigate any loss. Such reviews often involve a close look at the initial collections process as we have seen a number of examples where applicants have failed to make a single monthly payment.
First mortgage payment defaults are commonly a clear indicator that the mortgage application may have been fraudulent and competent lenders should always review their individual lending decisions when faced with these early warning signs, to see if there is a gap in their risk assessment processes that could help identify future potential frauds.
It is our view that it is just as important to establish the reason for any non-payment as well as trying to collect the arrears. Not only will this help with a TCF protocol and as a result, keep the regulator onside, but can also help to improve risk assessment techniques, by linking the ‘front end’ and ‘back end’ servicing processes.
Independent reviews of files and processes can help this assessment. We have a number of professional analysts with many years’ experience of mortgage fraud investigation; they are able to carry out full forensic reviews of individual files or portfolios to assess whether potential fraudulent activity has occurred, particularly by reference to payment histories.
Mortgage fraud remains a hot topic and it is arguable whether it will ever be completely eliminated, but it is important that every aspect of risk assessment is reviewed, and looking at arrears collection processes can be a key place to start.