Alleged $110m mortgage fraud may have been inevitable

Between April 2008 and December 2011, the brokers allegedly submitted at least 350 fraudulent home loans valued at about $110 million through 12 lenders, according to ASIC.

Ray Hair, general manager of national sales at Homeloans, told The Adviser that while the alleged fraud was very serious, the numbers quoted by ASIC are relatively small when put in context.

Australian lenders settle about $15 billion of mortgages per month, which dwarfs the $110 million of allegedly fraudulent loans spread between a dozen lenders over 44 months, he said.

Mr Hair said that bank systems are robust, and strike a reasonable balance between speed and scrutiny.

“While no one condones it and no one wants to see it happen, I don’t think that there is realistically more that could be done,” he said.

“In hindsight, you can always look at where something was missed, and each organisation will look at how things got through and what could have been done differently.”

Ballast chief executive Frank Paratore said loan fraud has become increasingly sophisticated and can be hard to detect if spread over multiple banks and repayments get made.

“The banks are running on automated systems and the only reason they can provide the turnarounds and service that they provide is because of these automated systems,” he said.

“Not every deal is going to have manual intervention – and even then, if you’ve got documentation that on face value marries up, how are you going to know that it’s falsified?”

Mr Paratore also said the banks are doing all that can reasonably be expected of them in regards to broker accreditation.

“From an aggregation perspective, I know what the banks sometimes put you through to get a broker accredited, even if it’s an existing broker on a transfer,” he said.

Firstpoint Mortgages director Troy Phillips told The Adviser that bank systems had become increasingly sophisticated in recent years.

Mr Phillips said it was important not to rush to judgement until all the facts are revealed – although he added that the parties involved would not be welcoming the attention.

“The banks will lawyer-up and try to blame the lowest common denominator, who can’t defend themselves,” he said.

“The brokers have been arrested, and there might be valuers and solicitors involved.

“But at the end of the day, the banks have the money and the banks have to have systems to mitigate this stuff, and if they haven’t, they’re the ones who are going to get caught holding the bag.”

[Related: ASIC set to get tough in 2015, says compliance expert]