Over the past 12 months, mortgage fraud has been thrust firmly into the spotlight, and if recent developments are anything to go by, the industry hasn’t come close to hearing the last of it.
The issue first came to light in February, when media reports suggested Commonwealth Bank of Australia (CBA) believed up to $1 billion of home loans on its books may have been obtained fraudulently, with the Australian Securities & Investments Commission (ASIC) later confirming it was undertaking “compliance inquiries” with Australia’s largest lender.
Since then, concerns around mortgage fraud have continued to escalate, with police, lenders, and regulators uncovering increasingly sophisticated methods being used by criminals to secure home loans, including the use of artificial intelligence (AI).
What first emerged as an estimated $1 billion problem has since reportedly ballooned to at least $4 billion in potentially fraudulent lending, much of it on the books of Australia’s major banks.
In August, the Australian Transaction Reports and Analysis Centre (AUSTRAC) dropped another bombshell, revealing that its Fintel Alliance had uncovered co-ordinated mortgage fraud and systemic weaknesses across Australia’s lending sector.
The findings came from Operation Claw, which analysed data from 10 Australian banks and identified potentially hundreds of millions of dollars in suspected fraudulent loans, most of which were linked to properties in Sydney.
AUSTRAC said the suspected fraud included inflated income claims, misrepresented employment, and fabricated or unverifiable business activity used to support loan applications. Investigators also identified cases where offshore or third-party funds were used to complete property settlements and make mortgage repayments.
The activity was not confined to one lender or borrower group, with recurring warning signs identified across participating banks, including falsified or misleading documents and the repeated use of mortgage brokers, accountants, and law firms across multiple loan applications.
At the time, AUSTRAC CEO Brendan Thomas said the findings exposed vulnerabilities across the lending sector that could not be addressed by individual institutions acting alone.
“The scale of this activity should be a wake-up call for every lender. The same warning signs were found across banks that together cover the vast majority of Australia’s mortgage market,” Thomas said.
“While this project did not identify evidence of widespread money laundering, the weaknesses it exposed could be exploited by criminals seeking to abuse Australia’s financial system.”
Industry reacts
The sheer scale of the fraud suggests only a co-ordinated response will come close to addressing it, which was very much a theme reflected in the industry’s reaction to the latest revelations.
Mortgage and Finance Association of Australia (MFAA) CEO Anja Pannek said the industry body was working with lenders and aggregators on a common approach to referral arrangements while pointing to the need for more robust data verification.
“Fraud is becoming increasingly sophisticated, and addressing it requires a co-ordinated response across the lending ecosystem,” she said.
She also suggested the Consumer Data Right (CDR) could provide a safer alternative.
“The MFAA has advocated for relevant ATO data to be made available through the Consumer Data Right, with appropriate consumer consent and safeguards, and we welcome Treasury progressing work in this area,” she said.
“Access to authoritative ATO data through the CDR could provide lenders and brokers with a more secure way to verify information, reducing reliance on documents that can increasingly be manipulated and providing another important layer of protection against mortgage fraud.”
Finance Brokers Association of Australia (FBAA) CEO Leo Gagic lent his voice to the conversation, saying the association supported action against mortgage fraud while emphasising that integrity and transparency remained fundamental to the profession.
Gagic also called for a co-ordinated response from lenders, aggregators, brokers, and regulators.
“The industry must work together to combat anything that is not best practice, and we stand ready to work with lenders, aggregators and regulators to ensure the integrity of our industry remains at the highest level,” he said.
“It should be noted that the recent action involves a miniscule percentage of brokers, and that overall, mortgage brokers are highly professional, which is why our industry is so trusted.
“The evidence indicates that this behaviour is limited to a few, however we acknowledge that even this is too many.”
Lenders in focus
What’s sure to be just as interesting is the response from lenders, with early reactions from industry bodies suggesting the lending sector will work closely with regulators and law enforcement to combat the problem.
Australian Banking Association (ABA) CEO Simon Birmingham backed calls to allow ATO data to be included in the CDR, which could give lenders access to reliable, single-source information less vulnerable to manipulation by fraudsters.
“Verified ATO data would give lenders a single, trusted source of truth for a customer’s income and be a new tool banks could deploy to prevent loan fraud into the future,” he said.
These calls were also supported by a spokesperson for the Customer Owned Banking Association (COBA).
“Customer-owned banks are committed to protecting their institutions and members from fraud. Our sector adheres to lending regulations and employs comprehensive fraud management strategies,” they said.
“We have also been advocating for secure, customer-consented ATO data to be allowed through the Consumer Data Right to strengthen protections and reduce the risk of fraudulent loan applications.”
More broadly, the response has also put the onus back on lenders themselves, with AUSTRAC urging institutions to take a closer look at their own books and controls.
The watchdog has called on mortgage lenders across Australia to scrutinise their loan books for signs of fraud, report suspicious activity, and strengthen controls to prevent fraudulent activity from entering the financial system.
For Thomas, it’s an issue that requires a co-ordinated response across the entire lending ecosystem, rather than action from individual institutions alone.
“Every lender should be looking closely at these findings and asking whether the same vulnerabilities exist in their own business,” Thomas said.
“The most effective way to stop mortgage fraud is before a loan is approved. Once a loan is established and the funds have moved, recovering the money becomes significantly harder.
“Lenders need to actively look for these warning signs, strengthen their controls and report suspicious activity to AUSTRAC.
“This is not something any institution can afford to ignore.”
