White lies on a bond application might seem like a relatively minor offence, but it could land you in hot water with the law as it is tantamount to fraud.

Mortgage fraud is also a growing phenomenon as the banks’ lending taps run dry due to the limitations imposed by the National Credit Act (NCA) and households’ high debt levels.

Wendy Zulu, head of Risk and Compliance at FNB Home Loans, says the bank has seen “a concerted effort in relation to mortgage crime”. “These take on various forms, but the main ones are inflation of income, identity theft, false employment records, failure to disclose other debt obligations, inflating the value of the property and/or price to be paid.”

She warns that these transgressions will be met with grave consequences. “We institute criminal charges against them, cancel the mortgage agreement (if applicable) and list the fraud on ITC.”

“Mortgage fraud not only harms the banks, but it harms people whose identities have been stolen.”

Berry Everitt, CEO of the Chas Everitt International property group, says “there are 101 varieties of mortgage fraud”. “And the real scale of the problem is only just beginning to emerge, but in most cases the lender is definitely at risk in these schemes. If you add this worry to the restrictions of the National Credit Act (NCA), it’s really no wonder that the banks are much more wary about lending than they were previously.”

Everitt agrees the most common form of mortgage fraud is still income inflation by individuals, that is, the falsification of income and debt information and documentation to help applicants obtain home loans, or perhaps bigger loans than they would otherwise have been granted. “This immediately exposes the lender to the risk of non-payment, since the borrower may not really be able to afford the monthly instalments, especially if interest rates rise.

“And it is of course absolutely illegal, so anyone who advises the would-be borrower to provide any false information in loan documentation is also putting that borrower at risk.

“Our unequivocal advice to potential buyers is never to be cajoled into making false statements on loan applications, including overstating your income, understating your debt, or lying about the source of your deposit or the nature and length of time of your employment.

“And if the person helping you make an application insists that ‘everyone else does this’ or that it is ‘quite legal’, ask them to put that in writing. You can be sure it won’t happen!”

At a national mortgage fraud seminar held late last year, Absa Home Loans Operations GM Pieter Vorster told delegates that an estimated R300m worth of fraudulent home loan applications had been blocked by the banks. And Greg Salter, the Nedbank Home Loans GM for Special Projects, Risk and Compliance, noted that mortgage fraud was increasingly being perpetrated by international crime syndicates using advanced technology.

“Indeed, the FBI recently noted that mortgage fraud is increasingly being favoured by criminals who see it as a low-risk activity generating relatively high returns.” – Eugene Brink

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