Conor Murphy of Smartr365, Jonathan Evans from Digidentity and Danny Belton at Legal & General Mortgage Club met recently to talk about how to improve the ID verification process when buying a house.
Mortgage fraud remains a serious issue in our industry, despite recent progress by different stakeholders to minimise the threat. There were almost 2,500 cases in 2018 according to CIFAS, with fake or stolen documents the most common forms of application fraud.
As fraudsters become increasingly bold and sophisticated, the mortgage industry must adapt and work together to protect borrowers and every other stakeholder involved in the process. With enhanced regulatory oversight from the FCA, there is a clear ‘official’ response to the threat – but there’s also an opportunity for forward-thinking industry leaders to join together and lead the way.
Conor Murphy, CEO of end-to-end mortgage adviser platform Smartr365, Danny Belton, head of lender relationships at Legal & General Mortgage Club, and Jonathan Evans, UK business development manager at digital ID verification provider Digidentity, recently discussed how the industry can work together to combat mortgage fraud. Read on to find out what they had to say.
Conor Murphy: We all know that mortgage fraud is a serious threat, and advisers really are the first line of defence. They have the first opportunity to raise suspicions and also the best chance to spot that something is amiss as they have the most contact with borrowers.
Danny Belton: It’s also crucial that advisers can and know how to protect themselves from liability, as they can be subject to legal action if they fail to report fraudulent documents whether they know about them or not. We know that’s a worry for some of our members, so there needs to be a robust process they can follow to show due diligence.
Jonathan Evans: And the current process isn’t good enough to give advisers, and importantly lenders, the piece of mind they need on this. ID and address verification is an unavoidable part of the mortgage application, but it’s also costly, cumbersome, and time-consuming.
Conor Murphy: That’s where technology has to come in to speed things up and reduce the opportunity for errors.
Danny Belton: Absolutely. Everything relies on original documents at the moment, and these have to be manually checked, slowing down the process unnecessarily. However most, if not all lenders are using technology for their own purposes, yet the majority still ask for an adviser to certify original documentation has been seen. It is time for lenders to update their standards to reflect the growing role of technology and its potential to improve things. Removing requirements to certify original documents is the best place to start, and it can lead to more progress in other areas.
Jonathan Evans: The worst part is that even though doing things this way is technically compliant with Joint Money Laundering Steering Group (JMLSG) guidance, it’s actually ineffective for preventing fraud.
Danny Belton: Also, not many advisers have had the right training to properly carry out document inspection, and many are reluctant to challenge their customers with suspect paperwork. That’s compounded by a lack of proper equipment such as MRZ (machine readable zone) code checkers and chip readers to thoroughly check a document. It’s possible that many advisers are currently operating on the assumption that they’re compliant with standards, but in fact they’re not.
Conor Murphy: A lot of this comes down to a reliance on manual, paper-based methods, and we have to be prepared to move past this if we’re going to improve the mortgage process and the industry as a whole. The current way of doing things isn’t good enough to defend against determined fraudsters, and we need everyone to get on board with newer, more secure methods.
Jonathan Evans: That’s why we need a more robust process to address these failings to help advisers comply with the law, reduce risk, and save money for everyone involved in the mortgage application. Digitisation can provide the answer.
Conor Murphy: Technology has to play a leading role in updating verification processes, and lots of advisers may already be using a system of some sort. There are certain standards to be met though, and it’s possible that the solutions in use aren’t compliant. We need to raise awareness of these requirements, beginning with the fact that providers have to be recognised by the Information Commissioner’s Office and conform to JMLSG guidance. They also need to be accredited through a governmental, industry or trade association process.
Jonathan Evans: Multiple information sources are key, too, both positive and negative.
Danny Belton: It’s also incredibly important that their methods are transparent, so advisers know which checks were carried out, what the results were, and what that then means in practice for their business. That will also help advisers to make sure any systems they’re using are compliant.
Conor Murphy: It’s important to say that this doesn’t have to make the process more burdensome for customers or advisers. It’s actually quite the opposite – with digitisation and automation, ID verification can be seamlessly integrated into the mortgage process and massively improve the speed, efficiency and cost of verification.
Jonathan Evans: Verification will then be very simple. Borrowers will just need to provide their personal details, along with two pictures of their face and a photo of their ID. In the background the technology ensures that everything matches up, with no waiting for physical copies, nothing lost, and fewer opportunities for error and exploitation by fraudsters. This is a serious but straightforward approach to fraud prevention.
Danny Belton: And it’s only going to get easier as data sharing tech such as Open Banking develops and becomes more widespread. This will require a cohesive approach between lenders and advisers, though, and it’s good to see that some institutions have already adopted sensible standards for advisers to meet. Getting lenders on board is a key step, and they can kickstart change by proactively changing their own processes.
Conor Murphy: That cooperation is crucial, and it’s through working together that the ID verification process will become frictionless, speedy, and secure. Most importantly, a joined-up, integrated digital verification process will make buying a house safer for everyone involved.