The Financial Services Authority (FSA) has referred over 70 mortgage brokers to its enforcement division, which has the power to issue hefty fines and penalties.
The regulator currently has around 200 mortgage brokers under investigation for home loan fraud.
Some brokers have been involved in complex criminal schemes whereby false surveys with inflated valuations have been submitted to lenders by fictitious mortgage applicants.
Through various methods, lenders have been duped into advancing more money than a property is worth and the situation only comes to light when the “buyer” defaults on mortgage payments and has disappeared.
The lender is then forced to repossess a property worth considerably less than the mortgage.
Addressing the Council of Mortgage Lenders, Philip Robinson, the FSA’s director of crime described this type of fraud as “bigger and more widespread than we thought”.
In last month’s 2008 Financial Risk Outlook report, the FSA warned that mortgage fraud will be one of its key risks to monitor during the coming months.
Previously its focus had been on what is known as “personal mortgage fraud” whereby a self-employed person is encouraged by a broker to falsely inflate their salary.
However, fraudulent activities by organised criminal gangs are increasingly being exposed.