Robert McKechnie, Open Banking expert at Equifax, explains how Open Banking can be used on the frontline in the mortgage fraud battle.
The dawn of Open Banking has been a positive step for the industry, bringing more transparency to the market and helping to accelerate and streamline processes such as mortgage applications. However, Open Banking can also be weaponised in the fight against rising mortgage fraud, as well as helping providers paint a truer picture of applicants’ financial applicability for products.
Figures from the fraud prevention service Cifas reveal that mortgage fraud is on the rise, up 5% in H1 2019 compared to the last six months of 2018. Cases of mortgage application fraud rose even higher, with a 14% increase in the submission of false documents and 32% jump in people entering altered documents to support a mortgage application.
Not only are such actions clearly against the law, they can also be mutually harmful for both the applicant, if approved, and the bank. Monthly mortgage repayments are calculated on the applicant’s financial circumstances, so, rationally, taking out a mortgage product on false pretences can lead to an inability to satisfy the regular payment requirements. Other consequences include credit blacklisting, criminal conviction or even a prison sentence.
Identity fraud is on the rise, up 10% in 2018, according to Cifas Fraudscape 2019 report, and mortgage providers are a prime target for fraudsters owing to the relatively large sums of money involved. Understandably, organisations are prioritising smooth application processes to optimise customer experience, but this shouldn’t come at the expense of robust controls to protect consumers and mitigate fraud.
The ease with which personal information can be obtained along with the anonymity of the web makes the internet a playground for fraudsters. Cyber-criminals are quick to move between channels while implementing increasingly sophisticated methods to create synthetic identities and conduct identity fraud.
To tackle this growing problem, there are four main areas where Open Banking, and the extra level of financial data it provides, may mitigate the risk of mortgage fraud: ID/impersonation issues; income verification and confirmation of employers; separation of salary components; categorisation of expenditure and identifying unusual/concerning spending trends.
Eradicating paper-based bank statements is a progressive move to reduce the risk of fraud. Providers are streamlining and simplifying their mortgage application processes using Open Banking. Customers are no longer required to submit and source copies of bank statements in support of their mortgage application, instead the Open Banking assisted journey immediately provides all the documentation required for identification. This digital process is cleaner, crisper, quicker for customers, and most importantly, more secure against the threat of fraud.
Specific identity verification software enables providers to access the applicant’s financial data, comparing information, such as the listed name, phone number and email address from previous credit applications.
One of the key advantages of using Open Banking platforms within the mortgage space is its ability to drill down into meta data on an individual transaction level. This allows a clear and accurate reflection of income and salary for use in a person’s mortgage application. Variances in income can be analysed and understood, for example, an applicant may work seasonally or earn commission. This information can help providers spot trends regarding continuity of employment, based on the source of their salary each month.
Most mortgage providers have strict credit policies around the acceptable types of income used to inform affordability. Increasingly, people are earning income through non-traditional methods or what can be called the ‘gig-economy’. Open Banking platforms allow providers to consider and identify all types of salary such as freelance work, state benefits and pension income. By verifying and separating all salary sources at the start of the journey, it enables a clear and accurate decision to be made when it comes to assessing current and future affordability.
Using current account data it is possible for lenders to identify a change in an applicant’s personal circumstances. Signs of financial stress can be quickly identified, such as regular utility repayment amounts being altered to lower round sums over a period of time, the applicant regularly using an agreed overdraft facility or their bank account going to into excess territory. Further signs of financial stress include account transactions being returned unpaid on a reoccurring basis and the payment of funds to specific debtors such as debt collection agents.
Though in its infancy still, Opening Banking has had a hugely beneficial effect on the mortgage sector for both the customer and the provider. It’s important that lenders embrace the platform, utilising its capacity to further harmonise the application process, as well as making fairer and more accurate credit decisions, and mitigating against the risk of mortgage fraud.
Source: Mortgage Finance Gazette