Friday, August 21, 2009

Can we expect an FSA investigation sometime soon then?

Massive fraud at building society

This raises a number of questions. Firstly, assuming this was not one single buy-to-let investor defrauding the Chelsea BS, how much responsibility should the Chelsea BS take for allowing themselves to be 'defrauded'? Secondly, is this fraud because Chelsea BS didn't make checks on the validity of information being provided? Are the actions of Chelsea BS's 'fraudulent' customers defined as fraud because Chelsea misjudged the property market by any chance? I expect the FSA will be hot on the case, bringing those responsible to swift justice. Or not.

Posted by paul @ 08:57 AM (1117 views)
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12 thoughts on “Can we expect an FSA investigation sometime soon then?

  • 2 quotes from the article that I like:

    “It said the frauds were mainly due to “the artificial inflation of property values by third-party professionals involved in the transactions”.

    “Its directors said the society was “comparatively well-placed” to deal with the problems of potential further losses and the difficulty of attracting savers, amid fierce competition from other societies and banks. ”

    Part of property price rises were due to the sale of property at fraudulently inflated prices. These will be gone now meaning prices will look to have come down anyway.

    As for the second quote… “comparitively well placed” is akin to me saying that relative to a dead frog I stand a good chance of winning the london marathon. As for “attracting savers amid fierce competition”… what competition? Have none of them thought of raising their rates?!?!?!

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  • ontheotherhand says:

    I wonder if this kind of fraud is present at every mortgage provider, but Chelsea found it hardest to hide and so is the first to confess.

    I can’t quite understand this fraud either. I can’t just get 300k lent to me on a property based on a fake valuation and then actually only pay 200k for the deeds and pocket the difference. Instead I’m sure developers and these people running property seminars would flog properties to punters based on inflated numbers and rental predictions backed by a professional valuation opinion paid for by them. The bank and the property buyer should have sought their own independent valuation.

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  • @ontheotherhand – the answer to your first line is yes ! as regulars on here will recall, I have stated repeatedly over the years that the market became overheated partly because of widespread fraud (much greater than the lenders even now suspect). All a rather large pyramid game which at some point is going to collapse

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  • they are almost saying the same things as B&B did about their finances before they went under..maybe time to pull money out of this one..lol ( i always though Chelsea was owned by a bank)

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  • Headline should read “Massive stupidity at Building Society”. Whilst I don’t doubt that VI’s over inflated the valuation on properties, isn’t it down to the BS to realise that prices are unsustainable and will therefore fall, and they therefore need to be a bit more conservative in their lending?

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  • Just type ‘BMV property’ into Google and you will see how big this is. A BMV deal by natue relies on network of professionals using an inflated property price to transact the purchase on the mortgage amount only. This is largely led by solicitors who know the loop holes.

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  • Putting this into context, £41 million seems a tiny amount, at todays prices that is 41 detached houses in West London so I am not sure what the fuss is about.

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  • mark wadsworth says:

    Yes it was fraud, but who was defrauding whom? Was it just the ‘valuers’ defrauding the CBS, or were mortgage salesmen at CBS defrauding the members of the CBS?

    As Andrew says, we have to put this in to context. That loss = about £123 per member of the CBS (over the last year and a half) and the average savings balance appears to be £16,600, so that’s like each of them losing 1% interest (after tax), so big deal, really.

    Not that these fraudsters shouldn’t be sent to jail, of course!

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  • Cheslea were one of the few lenders that were still OK with ‘back to back’ remortgaing or ‘next day’ remortgage. Now all lenders make you wait 6 months.

    It should have been (and in my eyes, was) obvious to them why people do back to back remortgages – its because you have bought the house at BMV and are then stripping out the equity..

    Its not hard to envisage the potential for fraud here is it my vhief executive and cheif of finance.

    Its fraud by the directors as much as by the brokers.. Everyone was in on it because as we all know………….house prices only go up!!!

    Or that the debt could easuily be sold on/securitised utilising the fantastic business strategy of ‘the greater fool theory’

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  • It’s small fragment of a much bigger problem.

    I did some ‘fag packet’ calculations a while back, and estimated that when the dust finally settles, there will probably be around £30bn of unrecoverable losses from BTL.

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  • MW – I don’t see how you can say so conclusively that it was fraud without seeing the actual details of the transactions. OK, if they were valuing 2 bed flats at a million quid then may be, but if CBS are moaning because a bunch of houses they financed have dropped 20%, then that was so predictable they should be ashamed trying to point the finger at someone else.
    If you back the favourite in a horse race and it loses, you can’t sue the bookmaker for misleading you into thinking it was going to win. I wish the whinging whining a-holes in the property market would shut the f*** up just because things aren’t going their way. It’s like the members at Lloyds when everything went t1ts up. If you can’t stomach the losses, then invest in something less risky. But then don’t moan if others are making more money than you.

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  • tenyearstogetmymoneyback says:

    Did no one else see this program back 18 months ago.

    http://news.bbc.co.uk/1/hi/programmes/panorama/7228220.stm

    Just glancing through the transcript I found

    “ROWE: Maria’s dream of becoming a property millionaire was sold to her by this company, Morris Properties. In its sales pitch it offers to look after the property, the tenants and the rents, so all investors like Maria have to do is… well – nothing! We met a chilly reception at Morris Properties Headquarters in Leeds when we turned up unannounced. In a speech last year its boss claimed his company had sold one and a half billion pounds worth of property across Britain since 2002. As the boom times recede Morris Properties pricing practices are now being subjected to scrutiny. The Land Registry keeps a record of the price paid for every property sold in England and Wales. It shows Maria paid just under £200,000 for the flat in Nottingham only she didn’t.

    And what did you pay for it?

    MARIA RUSK Buy-to-let investor I paid just under £170,000, that was my mortgage.

    ROWE: So you paid £170,000 for the property and it’s on the Land Registry as £199.995.

    MARIA: Yes.

    ROWE: So there’s a difference.

    MARIA: There’s a difference of 15%.”

    By far the most common fraud was for people to say they were paying a large deposit
    while in fact they weren’t paying anything at all and were actually getting a 100% mortgage.
    Although the builders didn’t gain financially they loved it because it gave the impression
    (even from the land registry figures) that prices were shooting up.

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