The real culprits behind the rise in mortgage fraud

Mortgage fraud caused the crash. The FSA isn't tough enough. Sadly its a bit late now, but its good to see some of the liar loan salespeople getting what they deserve.

Chris, Banks chasing business caused the property crash, remember Lehmans and the like? So called "liar loans" were only available because the banks made them available. If they hadn't been there, people couldn't have used them. The banksters have been comlplicit in all of this and yet NOT ONE has been prosecuted. I am not defending people who commit fraud, far from it, I am simply suggesting that FSA "justice" seems to be directed at one part of the process. All in my opinion of course.

its not fraud its theft

lock them all up for a long time hopefully

I disagree that mortgage fraud caused the financial crash although it would not have helped.

House prices became inflated by the ease of borrowing,when the first time buyer could no longer afford his/her house the "buy to let" brigade started buying the bottom end of the market with up to 125% mortgages willing given by some banks and building societies. The "buy to letters" I met all told me that their purchases would provide a pension for them in the future.(I could not convince them that may not be the case)

So greed IMO caused the crash and as always the last in lost the most.

I would also add that generally the prices of property have NO WHERE to go until the all important first time buyer can afford to buy. The first time buyer will not be a uni graduate as on average they graduate with a £20k debt.

Too easy lending practises got us into this mess. Why would anyone want or need to commit fraud when the banks themselves were thrusting offers at us every day asking us to take out loans or re mortgage our properties.

Fraud has always been around, and of course it should be stopped, but that wasn't the main problem.Greedy lenders, completing for business was.

I still think it was trying to fight two expensive wars at the same time that caused our financial crisis...

I disagree James. It was the job of lenders to lend money to responsible adults.

It was the job of borrowers to understand to what they were commiting themselves.

In the old days of the Navy Lark, Sub Lieutenant Philips had no problem with his overdraft - he was just going to write a cheque to clear it. Lots of people laughed. Many people didn't get the joke.

Unfortunately, nowadays, many of those who didn't get the joke have bank accounts, and mortgages and .. etc etc. I wouldn't be surprised if a majority of the population didn't even understand the concept, or impact, of compound interest.

If we want a credit based society, we need to educate people in the basic financial facts of life. It goes along with knowing how to cross a road, use the internet, etc etc.

No bankers being locked up for their part? No "consumers" detained?

Society is in dire need of regulatory balance, I see less each day.

idontwanttolose,

Maybe I was missing out whilst making by Buy to Let purchases, which lenders were giving 125% BTL mortgages? The best deal I got was in 1999 with a special low deposit deal leaving me with a 90% Mortgage. Bought 2 more in Summer 2000 with 80% mortgages although 85% deals were available with higher interest rates.

Presumably you were getting mixed up with the 125% Together residential mortgage offered by Northern Rock to ordinary householders who wanted the extra 30% cash loan to buy a couple of flashy SUV's that were not a good investment.....

Back to the point though I was offered dodgy mortgages through a broker linked to Birmingham Midshires without having to prove my income (not a self-cert loan, this broker arranged payslips and P60 forgeries) The broker did leave his office in rather a hurry - I wonder if he is doing a stretch now!

Fair enough PM Sharman, I take your point. It's up to the borrower to fully understand the risks etc. But without trying to sound in any way superior, lots of people have a very narrow viewpoint, and aren't used to the idea of saving up for something, or calculating not just the cost with interest added, but also the concept of what goes up can come down.

I am by nature a capitalist, and see nothing wrong in using the system to make a profit, but nevertheless, I would suppose you would agree (if not I am sure you will tell me) that many lenders took leave of their senses in some of the deals offered.

Kind regards.

In London in 2007 52% of mortgages were self-certified a.k.a. "liar loans" even though on 13% of the people there are self employed. If you were to go into an estate agent and ask how you could proceed with the purchase many of them would recommend that the only way forward was a loan/gift from parents or the "self-certified route".

The FSA has no interest in "the human factor" only in their supposed belief they are protecting consumers. In doing so they have conveniently ignored the huge increase in costs they have incurred on the industry for their ever changing rules that have restricted and limited investor choice and returns and these costs continue to rise which are ultimately paid for by the consumers, so they have failed on both counts really. They failed to regulate effectively and they have failed to give consumers better value or better advice after more than a decade during which time their costs have risen to nearly £1/2 Billion a year from just £170 million on 199/2000. .

What really happened. Strip out the impact of bubble house price inflation and deficit growth from 2002 onwards and the UK and US have had 8 years of negative GDP growth. Excessive lending was a policy response.

The Surface.

Yes it was fraud by those overstating income, the bank staff processing suspicious applications and the banks staff securitising such mortgages.

Over 50% of home purchase mortgages from 2003 to today were PAYE applicants getting self-cert mortgages, ie "liar loans".

Gordon Brown opted to socially engineer the UK in to a nation of Landlords and Tenants by giving tax breaks to BTLs equivalent to 40% of purchase price. Because tenants largely vote Labour.

But people want to own their home. So they cheated and the banks played catch up to keep the mortgages legal.

Because excessive private lending went in to house price inflation in the US and UK the policy hit a brick wall when the developing BRIC middle class caused core inflation to grow and a modest cyclical recession loomed.

Here are rough figures for the % of take home income a 25 yr straight repayment mortgage costs

At 6% interest.

x4 income mortgage takes +50%

x5 income mortgage takes 66%

x6 income mortgage takes 80%

At 8% interest

x4 income mortgage takes 64%

x5 income mortgage takes 80%

x6 income mortgage takes 96%

Hence the growing withdrawl of capital from the mortgage securities market from mid 2005 onwards which precipitated the credit crisis.

The Core

The BRICs' stimulus emphasis has already moved from infrastructure development to raising domestic consumption. In the process political power is shifting to the middle classes. Russia and Brazil are coping. But India and China are having problems with this.

In the 'west' maintaining stimulus with huge numbers of unsustainable UK, US, et al, mortgages is failing. Currently we know about 5 year plans for cuts to public services with no corresponding tax cuts, central bank rates below 2% for the next 5 years, and QE again and again, regardless of surface growth rates, inflation and political rhetoric.

For the UK this re-balancing of private and public sector is insufficient.

Investors view as too risky securitised high income multiple mortgages in an economy where wage inflation is low and heading south. They want to see house prices, wages and consumption re-balanced within a 6 year timeframe that will allow people to buy homes now in the expectation that their mortgage repayments will fall quickly in real terms.

A lower value for the £ is not a policy option because other nations will follow leaving us in the same situation as now.

It is the structural barriers and costs for UK business' and consumers that have to be resolved.

The policy the UK will follow is de-regulation to remove barriers and costs across all sectors of industry, business and consumption. There are already hints of this in the public space.

In the UK the planning system is the overwhelming barrier and cost. It adds 25% to factory gate prices, 100% to property prices, blocks infrastructure, manufacturing and residential development from happening in cost effective locations, if at all.

Address this directly and property prices would collapse taking out a substantial lump of existing residential mortgages, creating a banking crisis we lack the ability to cover.

The solution is economic zones where infrastructure, manufacturing and business development.are allowed in the locations they want to be, combined with drastic de-regulation of industry and business. Canary Wharf and the financial services "big bang" are the model.

The scale and time frame of the re-industrialisation and re-commercialisation necessary to re-balance house prices, wages and consumption to sustainability is awesome.

Failure to act will be a disaster for us. The housing market had already used up the capital heavy FTBs and large falls in prices beckon. Millions are frightened of losing their jobs in the coming year with little hope of finding other work, many are highly specialised professionals, semi professionals, skilled people with mortgages and families. Expecting business and manufacturing to locate here to take up the slack without addressing the reasons they didn't locate here before the credit crisis is plainly poor strategy. People are right to be frightened.

As Buffet says, "recessions end when asset prices fall and wages rise".

Houses are still way over priced and wages are nearer to falling than rising.

Im with the notion that the property boom was virtualy responsable for the boom and bust times we have had.

In 2000 - 2007 it didnt matter what you asked for you got you could literally lend 10k off the bank go to another bank and say i have my deposit the 10k you just lent and do a self cert morttgage.

I would say the only criteerria being a good credit history We also had B&Q homebase etc selling lots of goods where these self certers were doing up these houses theres you boom builders plasters etc etc were raking it in the banks were over the moon look back at their share prices to justify my claim .

It meant solicitors were doing well manafacturers it goes on and on now its all over.

If the inland revenue looked at these self cert mortgages it would be interesting because they will find that the applicant will have certified perhaps 75k forb the year then put 25k through the books it would nean the self certer would owe the inlasnd revenue the shortfall in their earnings or clearly fraud had been comitted.

Its ineresting how many of these self certers made vast ammounts of money and never paid capital gains .

Any idiot could see house prices at the ever increasing income multiples needed for people to buy them was unsustainable. We pay our Government to look after and put a stop to "boom and bust" as Mr Brown so proudly proclaimed he had stopped, but he was a fool and did nothing even though it was staring him in the face.

They all of course walked away with their heads held high with hansome pensions etc and in Blair's case some very lucrative work outside of the UK turning him into a multi millionaire.

Unlike us the are unaccountable and we have to pay for their mistakes.

Justice does not exist anymore.

No one who was regulating or overseeing the finances of the UK seems to have paid any price for their failure at all, some have even been rewarded for it.

We are a nation of ever increasing laws and regulations it is hard to do anything anymore without upsetting some law or regulation but we have no "accountability" for those who rule and regulate over us when things go wrong - no wonder we are in a such an almightly mess and the worst is yet to come..

Anonymous 1

I personally sold a house to a buy to leter which was bought on a 110% mortgage.(with Northern Rock supplying the mortgage)

The buyer arranged their own mortgage and told me that they were offered a 125% but did not need it !!!!!!!!!!!!!!!

The easy /availability of mortgages stoked the house price boom, every buyer thought they could not lose on property.( and maybe they will not over time !) They do however have to get through the current recession, have perfect tenants (the buy toleters) and no maintenance bills and make their mortgage repayments on time. As an example of current costs all of my properties are debt free and return about 3.5% nett, do you really think that they have a hope?

On a slightly different subject how about all the interest only mortgages sold with no provision for the capital to be repaid after 25 years (apparently 3.7 million of them) some of these mortgages are 10 + years down the road with 15 years left to run if I were the ageing mortgage holder I would be more than a little bit concerned about how I could repay the capital sum in my older age!!

With 5% pa inflation property prices are falling in real terms even if the quoted price remains the same.

Want to see a REAL economic crash, a recesssion without end? Then continue to tamper with the housing market and impose more bureaucracy. Maybe house prices helped get us into this mess, but creating a situation where millions of people live in houses worth less than the amount owed on them will do FAR worse things to the economy. Better find a middle ground!

Idontwanttolose,

Good sensible comments but the Northern Rockers 125% mortgages were a 95% residential mortgage granted with a further loan of up to 30%. If a Landlord used that one it was probably for his first BTL investment and he wasn't being truthful. Much better trackers were available between 2001-07 with 0.5% over Base Rate (B of E).

When I sold my BTL's in early 08 all were bought by neighbours and tenants using Residential mortgages and all the room renters stayed. It shows how lax things were even a short few months after NR closed their doors.

3.5% nett return seems about spot on (are yours in the South East/Home Counties?) I won't be making any more investments into BTL for the forseeable future, the only decent returns seem to come from HMO's but they have disadvantages as well as the obvious advantages.

Looks like Interest Only has had it's day now, my first house was bought on that basis as I was refusing to take an endowment mortgage from RBS in 1992. The monthly Investment Trust purchases I made paid my mortgage off in 9 years instead of 25 so I was a fan of "Interest Only". The problem really stems with people buying houses when unable to pay the capital back or contribute to some sort of investment plan at the same time. Maybe most of these were first-time buyers who were too young to remember the property crash of 89-92 or they didn't think it would happen again...

I know the last 3 years have left a lot of people much worse off than they were before but it was still surprising to read how many Pensioners were still going to be paying mortgages after 65, makes it clear that there are two sides to being a Baby Boomer after all.

Hope your 3.5% yield increases soon, I know the repairs and maintenance bills can really eat into your profits unless you can do all your own.

Idontwanttolose

Yes, very sensble comments on interest only but what about the ones who a renting in retirement? Doesn't seem to be much difference on the face of it.

"but nevertheless, I would suppose you would agree that many lenders took leave of their senses in some of the deals offered."

james corbett

You are, of course, correct James. However that was probably down to the devaluing of experience in the lenders. Lending 100%, or more, of collateral was a bet on inflation wrt the collateral. Just poor risk management.

When the 'baby boomers' started buying property most people were living in rented accommodation, renting from the council. Mrs T. offloading all these council properties gave everyone the idea that owning a property is the 'normal' way to be, and a good way to build capital But is it actually the best way to go now? If you are renting a property you can move very cheaply to find a new job somewhere else, and if you are retired or unemployed you will very easily get housing benefit to pay your rent if you are in difficulties. Landlords are responsible for the repairs and maintenance too. It seems increasingly obvious that buying property is not going to be the capital building opportunity it once was, so better to save in other ways. It may make some of the decorating programmes on TV less interesting, but it frees you up for other things.

When renting and the cost of a mortgage are equal, why wouldnt you want to own.

your employed you get a mortgage and then go and work for yourself, how many thousands did this knowing full well they couldnt get a mortgage without an employer. I dont think mortgage fraud is so black and white

As a historical note, I still have a long letter from an insurance broker, RT Williams, from the 1970's putting forward a reasonable argument for not getting a mortgage and buying a property for letting ( my employer provided my own at low rent). I seem to remember that it was a period of low house inflation and historically high interest rates. Cynics might latch on to the self interest of the broker that this advice supported, but, there was logic in the 3 page missive. The advice was listened to, but later, when conditions looked to be changing I bought - I think the interest rate was 12.5%.

Two lessons -

a) advice is only that - advice. (Consultancy is paid for)

b) the only certainty is change

As a broker who's been in this business for more than 20 years I've seen the "hard to get" mortgage become "easy to get" and now back to "hard to get". The lenders control the flow of mortgages and when money is plentiful they have their "BDM's" out there telling brokers how to process the applications. When money gets tight and default rates start to rise, the lenders shout "foul play" for all the dodgy business they were happy to take. Those of us who refuse to get involved in this game have nothing to fear, unfortunately some of those who listened to the lenders' BDM's will end up in court or in jail.

There is now substitute for security and credit control in the Banking business,whether it be mortgages on property or commecial finance. Having spent half a life time in banking I was always struck by the misconceptions of what a bank is for, So many people think Banks are there to provide Risk capital in a business. They had no concept of the difference between capital and revenue. It was just money to them. They had never studied business finance, and again had no comprehension of maintaining liquidity, let alone the control of granting open account credit and its attendant risks. The time I have spent advising perfectly good busineses how to go about the financial side, which they assumed would take care of itself. Business finance has to be elevated to the top of the commercial agenda for every aspiring business person to even stand a chance of surviving in this climate. We are now back to reality. Lets keep it that way.