Mortgage fraud: It’s back!

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Mortgage fraud: It’s back!

Reporter 7 minute read

Credit application fraud is at its highest levels since 2009. With the rapid uptake of digital and new technology, fraudsters are finding new and more clever ways to rort the system

The number of incidents of mortgage fraud have spiked significantly since The Adviser covered the issue in March last year. Nine mortgage brokers have been banned by ASIC for fraud since December 2013.

Analysis of Veda’s Shared Fraud Database – a consolidation of confirmed fraud events across Australia – reveals a 27 per cent increase in total credit application fraud in the 12 months to 2013.

“With Australian businesses losing an estimated $1.4 billion per year to fraud, the jump in fraud should be of concern to all Australian financial institutions,” Veda general manager of fraud and identity solutions Imelda Newton said.

“The increase in credit application fraud can be partly explained by growth in credit markets, however the real driver has been a change in the way individuals and criminal gangs are using new technologies to exploit and defraud credit providers,” Ms Newton explained.


In 2007, identity takeover represented 26 per cent of identity fraud; by 2013 this had risen to 89 per cent of all identity fraud. According to Veda, fraudsters have adopted identity takeover as a technique – over creating fictitious identities – because improvements in identity checking practices and technology have made creating bogus identities far more difficult.

Warfield and Associates is a Sydney-based law firm that specialises in fraud and according to partner and forensic specialist Brett Warfield, the rapid technological advances and growth of online customer on-boarding platforms have led to specific vulnerabilities in identity verification authentication processes.

“The shift from identity fabrication to identity takeover confirms that fraudsters are adapting to improvements in identity verification and checking practices,” Mr Warfield said.

“The change makes false identities less viable,” he said. “Financial institutions need to increase the sophistication of their technology to mitigate the risks of growing and changing fraud attacks.”

Identity theft

Identity theft remains a big problem for broking. While the NCCP requirements work to mitigate some of the risks, fraudsters are finding increasingly creative ways to cheat the system.

“Brokers aren’t necessarily trained to spot what could potentially be identity theft,” MyCRA Lawyers chief executive and former broker Graham Doessel said.

“We see it on a regular basis where we have even had clients come to us to have their defaults corrected and [we’ve] discovered that it is actually the identity thief that is trying to fix up the damage they’ve done so they can hit them again and get more money.”

Underpinning the majority of mortgage fraud cases in Australia is the use of stolen or fictitious identities.

Among the four segments of credit application fraud recorded by Veda – false personal details, fabrication of identity, identity takeover and undisclosed debts – identity takeover grew fastest, increasing 103 per cent from 2012 to 2013.

Veda figures show that identity takeover represented 26 per cent of identity fraud in 2007. By 2013 this had risen to 89 per cent of all identity fraud.

“That’s where it starts in many cases,” Ms Newton says.

“Years ago it used to be fictitious identities, but as identity verification processes improved, we’ve seen a big shift from that to the use of stolen identities,” Ms Newton says.

“Brokers who are doing their own verification upfront have a much better chance of detecting any abnormal behaviour or activity early in the piece,” she says.

While cases of mortgage fraud have increased, it is important to remember that the rise is consistent with increased lending activity since 2012.

“While there is activity going on, the fraudsters may perhaps think it is easier to get through undetected,” Ms Newton says.

“And of course lenders are keen to be writing as much business as they can,” she added.

“This can sometimes lead to more relaxed lending standards and due diligence. Some fraudsters are taking advantage of that.”

Naïvety or greed?

A longstanding issue for the industry has been instances where brokers are deceived by their own clients.

Borrowers desperate to get a loan approved can falsify income information, including payslips and bank statements. There are two aspects of this type of fraud, says Mr Warfield.

“One of which is a naive broker who doesn’t do their work properly and doesn’t review and validate those payslips and bank statements,” Mr Warfield explains. “Some of those over the years have been quite obvious when we’ve looked at them,” he says. “They’ve been quite blatantly fraudulently made.”

With improvements in desktop publishing and digital technology over the past decade, forged documents are now becoming difficult to tell apart from originals.

Brokers often pass on fraudulent documents unknowingly, implicating themselves and their aggregator in the process. Then there are brokers who simply just chase commissions, Mr Warfield says.

“They turn a blind eye to some of these documents that they believe are probably fraudulent but they are trying to assist the client to get what they want, and are also getting a decent commission out of them as well,” he says.

All brokers can be open to these types of scams, but recently banned brokers – who purposely perverted the system and committed fraud – targeted their own communities, says Mr Warfield.

“There is the occasional rogue broker from big branded groups, but a lot of the ones that come to light tend to be people who are a one- or two-man operation,” he says.

“They are often local and target their own communities.”

It must be noted that mortgage fraud is not just an issue for brokers but for all professions involved in the transaction process including solicitors, accountants, agents, valuers and lenders.

Knowing how to identify fraud is the best way for brokers to avoid implicating themselves.

Training and education

The FBAA runs an anti-money laundering course designed by Deloitte that has helped many brokers identify fraud.

FBAA chief executive Peter White says those that complete the course develop a high skill set in being able to identify things that look out of place, including suspicious and fraudulent activity.

“Brokers need to make sure they have that level of training and education,” Mr White says.

“Part of the move from the industry is to get people to do a refresher course every two years on their counterterrorism finance and anti money laundering courses,” he says.

“The reason for that is to make sure that people keep their skill set honed in identifying where things look out of place with applications or even in lending structures.”

Aside from verifying documents, brokers can be on the lookout for any strange behaviours, Ms Newton adds.

“For example, if there are joint applicants and you can’t ever seem to get the information you need from one of them,” she explains.

“You might be asking for supporting documentation such as proof of income, tax assessments and information about any debt they may hold.

“If Applicant A is forthcoming but Applicant B is stalling and giving you every excuse under the sun, that’s odd. Things like that should ring alarm bells.”

Organised crime

While the statistics reveal identity theft as the underlying issue, fraud comes in many different forms. Organised crime is on the rise as brokers act in collusion with other parties to defraud the system, according to Mr Warfield.

“When we are dealing with the police, what we are hearing is the majority of cases are organised crime where you’ve got a group consisting of mortgage brokers, valuers, solicitors and accountants,” he said.

“Or it is rogue mortgage brokers themselves, who are either assisting clients to get their loan through or, even more sinister, they are actually taking advantage of their clients without their knowledge and getting loans approved for much greater value than the client is seeking and getting some benefit out of that.

“That is one we tend to get the most correspondence with.”

What brokers can do

Ms Newton says there are two key strategies that can be used to combat fraud.

“Firstly, the best protection against credit application fraud is for credit providers to work together and adopt a multi-layered approach to detecting fraudulent activity,” she says.

“This holistic approach helps businesses identify fraudulent credit applications, reduce credit risk through early identification of suspicious data, and reduce bad debt losses without compromising the customer experience.”

Secondly, credit providers need to be using best of breed technology to verify the identity of individuals to whom they are extending credit.

“The most effective tools combine identification checks against multiple data points, together with the use of ‘out of wallet questions’, dynamically generated by a knowledge-based authentication process,” she says.

Veda’s Your Credit and Identity service has a Credit Alert option that notifies a customer by email if certain changes have occurred on their credit report, which can alert the customer to potential fraudulent activity.

“This proactive approach from lenders reduces the risk of fraudsters applying for loans in that customer’s name,” Ms Newton says.

“It helps protect both the financial institution and the customer,” she says.

“The rebound in credit fraud is a reminder of the critical need to address fraud prevention and detection across the financial services industry.”

Mortgage fraud: It’s back!
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