The latest mortgage fraud

I have been reading about the mortgage frauds on a very large-scale which are being uncovered in flat developments in Thamesmead. No one notices mortgage frauds when the market is going up, only when it crashes and the lenders don’t get paid.

Financially savvy criminals agree to buy a load of new flats from a developer off-plan at a very steep discount to the published price - perhaps even 30% lower than the developers are advertising the flats to the public. The crooks then sell them on at the published price. Nothing wrong so far. They are perfectly entitled to take the gamble of signing up at a discount and they do pay their 10% deposit to the developers. But they don’t rely on finding real buyers, although they may find a few. What they do is come up with a load of phoney buyers who take out self-certifying mortgages – “lie-to-bet” mortgages as they are now amusingly called. The crooks don’t even need bent surveyors for this. The surveyors can see what price the developers are offering the flats at, so they can certify that figure as the appropriate value to the lenders.

Then at completion the ultimate buyers use the mortgage money to buy the flats off the crooks, who simultaneously buy them off the developers as the agreed discount. When the buyers are phoney they never pay the mortgage, the crooks merely let the flat and pocket the rent till the lenders repossess, up to a year later.

The fraud was essentially in not taking the risk of buying off plan and then having to find real buyers, but setting it up so that the mortgage companies would be financing the whole thing anyway with they realised it or not.

Developers helped this process along, because they refused to reveal to banks what discounts they had offered to other buyers. So lenders were always assuming unrealistically high values for the flats, because they were going by published intended values, not real deal prices. When the potential for fraud was revealed, the banks threatened to stop lending on new blocks of flats altogether. The deal they have now done with developers is that the lenders must be told the amount of any discounts.

Probably no one will ever get prosecuted.