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• Bradford and Bingley case 'tip of toxic debt iceberg'
• 'Every effort' being made to save tenants' homes
Nine people were being questioned yesterday by police investigating a multimillion pound buy-to-let mortgage fraud against one of Britain's best-known high street lenders. Detectives arrested the nine yesterday on suspicion of a £40m fraud against the Bradford and Bingley bank in a case which sources say is the tip of the iceberg in a mortgage market riddled with toxic debt.
Specialist detectives in the City of London are receiving reports of similar mortgage frauds against banks and building societies daily, following the collapse of the property market.
Fifty officers from City of London police and the Sussex force raided the homes of eight men and one woman aged between 29 and 73 who are alleged to have defrauded Bradford and Bingley for two years. Officers from City of London police fraud squad were searching six homes and three business premises in Bexhill, East Sussex, and north London.
Eight of those arrested are linked to Eastbourne Financial Services (EFS), a now defunct mortgage advice company based in Bexhill, which was at one time regulated by the Financial Services Authority. The ninth was a bank official. All are suspected of fraud involving the overvaluing of more than 500 properties in the south of England between 2005 and 2007. They were being questioned on suspicion of conspiracy to defraud and money laundering.
The company's website was still operating yesterday, saying "sub-prime" lending was its speciality. The company promised it would secure loans by "cascading from lender to lender with simplicity and speed".
It says EFS, which started operating in 2003, is regulated by the FSA.
Hundreds of people living in properties across Sussex which are suspected of being bought fraudulently have been told that every effort is being made to stop them losing their homes.
Detective Superintendent Bob Wishart, of City of London police, said: "We know that fraud has the potential to impact on local communities and we are determined not only to work with colleagues across the UK to investigate such frauds, but to liaise with other agencies to mitigate that impact on innocent people affected by the criminal greed of others.
"We have worked closely with the local police in Sussex and with the owners of the properties involved to minimise the impact of our investigation on local communities and on tenants."
The raids come at a time of growing fears over the vast scale of mortgage frauds being uncovered as the recession bites. Senior police officers are so concerned that forces across the country have been sent a secret intelligence report on the issue. It suggests that organised criminals have exploited the mortgage market with ease to launder criminal profits.
Detectives say that at the heart of the frauds are corrupt solicitors, mortgage brokers and surveyors who cream off millions of pounds in profits. Defrauding banks and building societies is seen by criminals as a soft touch because of the low risk of detection and the ease of securing the loans with forged documents and the help of corrupt professionals, the intelligence report says. As a result, the market has been poisoned over the last decade with the criminal profits of human trafficking, drug dealing and prostitution.
Police are now working with banks and building societies to monitor suspicious mortgage applications. In 2007 alone the estimated scale of mortgage fraud was £700m; the figure rose in 2008 and is expected to rise again this year, sources say. Commenting on yesterday's arrests Bradford and Bingley, which was taken over by the government last September, confirmed that it had been the victim of the alleged fraud. A spokesman said: "We have been helping police with their inquiries."
The nationalisation of Bradford and Bingley's mortgage lending division exposed every British taxpayer to the equivalent of £5,500 in mortgage debt. It was the biggest buy-to-let lender, and its £40bn mortgage portfolio included 80% of mortgages to amateur landlords and people who self-certified their income.
Brian Dilley, a partner at KPMG Forensic, said that he expected to see more such mortgage fraud cases. "As house prices continue to fall, there will be more and more of these cases surfacing," he said. "Lenders are now proactively looking at their loan books to identify indicators of such frauds."
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