Aggregators are helping advisers strengthen their response to mortgage fraud as increasingly convincing documents put greater emphasis on verification, questioning and knowing when to escalate
For aggregators supporting mortgage advisers, fraud prevention starts with ensuring teams ask enough questions – and have somewhere to turn when the answers do not stack up.
Warwick Slow (pictured, left), CEO at the Kiwi Adviser Network (KAN), says education and scrutiny remain essential, even as technology changes how financial information is created and verified.
“Education is the big one. Make sure your advisers, or anyone giving advice under your FAP, are asking the right questions.
“None of this is new – it's part of every adviser's job, but it's the depth and detail you go into that matters. Don't be lured in by a strong referral source if that referrer is trying it on with you.”
Familiar schemes still carry significant risks
Slow’s warning sits alongside concerns from the Financial Markets Authority (FMA) about increasingly sophisticated supporting information, while open banking providers point to ways of reducing reliance on applicant-supplied documents.
Some fraud arrangements can make a borrower appear financially stronger at application time while leaving them exposed after settlement.
“A lot of what we're seeing sits in the development space – hydraulicing [an illegal or fraudulent scheme where a property is sold on paper at an inflated market value] and GST fraud in particular. There's also a group of individuals marketing themselves as property coaches, charging large fees to get people into homes,” says Slow.
“The pattern is that the coach pays off the client's short-term debt so the application looks stronger than it is. Once the mortgage settles, they sting the customer with more debt, and in some cases that customer can't service what they're left with.”
And Michael Hewes, Director Credit, Deposit Taking, Insurance and Advice at the FMA, says the consequences for consumers can be substantial.
“Borrowers may take on larger and potentially unaffordable mortgages where false or misleading information is provided in support of a lending application. Consumers may also risk losing deposits, including funds withdrawn through First Home KiwiSaver schemes.”
READ MORE: Mortgage fraud complaints rise as advisers urged to dig deeper
AI raises the verification challenge
Emerging technology is making false financial evidence easier to produce, although advisers continue to encounter fraud methods that predate AI.
Josh Daniell (pictured, right), Co-founder of Akahu, says the change is particularly apparent in bank statements.
“AI has made it much easier to generate fraudulent bank statements that are convincing and hard to detect.”
Hewes says the challenge extends across several forms of supporting information.
“Fraudulent supporting information is becoming increasingly sophisticated and convincing. This can include synthetic credentials, falsified documentation and manipulated information relating to income, employment, or financial commitments.
“AI-generated content and deepfake technology are emerging enablers, but the broader challenge is ensuring that critical information can be independently verified.”
Slow says advisers should prepare for improving document quality while maintaining their scrutiny of the underlying story.
“AI may be helping with some documents, but we still see plenty of errors in them. Most of the fraud we come across is standard fraud tied to issues that were around well before AI.
“For a keen-eyed adviser, fraudulent documents usually still have tells. However that won't be true forever, and advisers should assume the quality improves each year, but the answer doesn't change – verify at the source and ask enough questions that the story has to hold together.”
READ MORE: NZ regulators tell financial firms to prepare for AI cyber incidents
Look across the whole application
Warning signs can emerge through the relationship between documents, transactions and explanations, rather than through an obvious flaw in one file, explains Hewes.
“There is no single indicator that confirms fraud. It is often identified through inconsistencies across several sources of information rather than one document appearing suspicious.
“Lenders, advisers, and other participants involved in the mortgage process should consider whether information about income, employment, expenditure, debts, and other financial commitments is consistent across the application and supported by reliable evidence.
“Information that cannot be independently verified, conflicts with other parts of the application or does not fit the customer’s broader circumstances may warrant further enquiry.”
Slow highlights sudden debt repayments as one example deserving closer attention.
“Debt paid off very quickly with no evidence of a matching jump in income is a common one, and it's often the coaching arrangement I mentioned earlier showing up in the file.
“There are plenty of others, but most advisers will pick it up on intuition – the alarm bells start ringing once you ask the right questions.”
READ MORE: SFO cracks $5m mortgage scam
Obtain information at its source
Open banking can reduce exposure to altered statements by changing how advisers obtain financial information.
“It’s a better way to collect data because it completely avoids the risk of tampered bank statements,” Daniell says.
“It also means that you get the exact data you request, rather than going back and forth with a client to fill in gaps in the data they've shared manually.
“With the regulated open banking system, your client is redirected to their bank to log in and authorise your data request, so there is no sharing of login credentials with a third party.”
However, verified transaction data still requires interpretation.
“A fraudster could still create real transactions in their bank account in order to try and fake income. But if the data is shared using open banking, there is no way for a fraudster to manipulate the data that we collect from the bank.”
For Daniell, automation also leaves an important role for advisers’ expertise.
“Human judgement will remain important for providing advice, as opposed to simply facilitating the application process, particularly for complex situations.”
Turn concerns into a clear response
When an inconsistency remains unresolved, advisers need a process for seeking evidence, recording their enquiries and escalating concerns. Slow says it’s important to keep asking questions of your customers as the more you ask, the more it starts to unravel.
“Any time something doesn't quite stack up and you move on, you've given someone the opportunity to get away with it. You don't need to prove fraud has occurred before raising a concern.
“Stop, ask questions, get further evidence, and document what you've done. If the concern can't be resolved, escalate it through your FAP's compliance process and to us at KAN before the application goes any further. If you're unsure where to take something, the FMA also has a protected disclosure process under the Protected Disclosures Act.”
Hewes says businesses also need systems and training that support consistent detection.
“The FMA expects lenders, advisers, and other participants involved in the mortgage process to have effective systems, controls, and monitoring processes in place, and ensure staff receive appropriate training to recognise both obvious and subtle indicators of potential fraud.
“Information sharing between lenders, advisers, technology providers, and regulators can also assist in identifying emerging fraud trends and strengthening the resilience of the wider system.”
Building capability across adviser teams
For aggregators, the response includes helping advisers develop their knowledge while strengthening the verification tools available to them.
Slow says KAN’s recent professional development programme demonstrated advisers’ appetite for practical guidance.
“We ran a session on this at our recent PD day with our General Manager, Sarah Johnston. It was easily the most popular session of the day and there was a real appetite from teams to be clued up on it. We're planning a webinar off the back of it – and anyone who'd like to attend can get in touch with me.”
He also sees open banking becoming a greater part of the network’s response to document fraud.
“The bigger structural fix is open banking. When the data comes directly from the bank, there's nothing to alter, and a lot of the document fraud we're talking about stops being possible.
“There are tools for doing this already. We hold an open banking licence and we're working on bringing it into the process at our end.”
