In order to establish credibility it is necessary to go back to October 2006 when my son approached me with a business proposition.

 

He had a substantial background in the provision of social housing as a local government officer and had recently been attracted to the private sector.

 

Whilst negotiating on behalf of his employer with a County Council he became aware of the fact that the Company he was representing was in serious financial difficulty.

 

Having declared this fact to the County Council who had been impressed by his background and experience it was suggested he should consider setting up his own Company and submit a tender for consideration.

 

The proposition was to set up a private limited company for the provision of supported accommodation for unaccompanied minors seeking asylum aged 16 and upward.

 

After the development of a business plan and securing the necessary finance the Company was incorporated in February 2007 and after a short bidding process was awarded the status of an approved supplier of services to the County Council.

 

Properties were subsequently acquired from landlords in the private sector on a tenancy basis, furnished and made available for use by the County Council on a fee paying basis.

 

The greater majority of the properties acquired were new build flats with the Company being the first tenants.

 

All seemed well in terms Company growth and development until possession orders from Banks and Building Societies started appearing in relation to various properties.

 

It transpired that whilst rent was being paid in advance to the various landlords no payments were being made from the rental income to meet mortgage payments.

 

Furthermore, subsequent investigations indicated that mortgages had been obtained on the basis of owner occupier and not on a buy to let basis.

 

Unfortunately the residents being young asylum seekers with a poor command of the English language were unaware of the significance of various correspondences delivered to the properties and merely discarded them.

 

The implications upon the trading ability of the Company were considerable warranting an in depth investigation into all and any associated property linked to the Landlords providing properties.

 

The initial belief was this was down to misfortune and that these were isolated instances perpetrated by individuals operating in a fraudulent manner.

 

There was no initial indication as to the scale or the subsequent consequences of a practice which was to prove detrimental to the economic well being of the entire nation and beyond.

Before proceeding with specific details it is necessary to appreciate some of the basic principles and contrived consequences which together demonstrate a system of major fraud perpetrated by individual participants in collusion with Banks, Building Societies, Solicitors and Brokers.

 

It is also necessary for the reader to have a general understanding of how the property market operates.

 

For example: how is the value of a property determined?

 

In simplistic terms the price is based on supply and demand and not the cost to build. The actual price is determined by comparison with like properties within a specific area normally by reference to recent activity recorded by the Land Registry.  

 

At the core of the fraud is the boom in new build properties targeted at the buy to let market and its influence across the entire property market.

 

It is also necessary to appreciate the principle of “Salting” within the property market and its effect upon property values in broader terms.

 

The principle of salting is derived from widespread fraud perpetrated during the American Gold Rush of 1848 - 1852 when unsuspecting victims were duped into buying land supposedly rich in gold or silver deposits.

The reality was an area had been salted by firing gold or silver deposits into an area of land creating the illusion it was potentially rich in minerals, when in fact it was worthless.

 

The same principle when applied to the property market influences the entire market as values are determined by comparison within a defined area.

 

The current valuation of properties within an area are determined by comparison with recent sales values as noted from the Land Registry records which in turn establish a mean value within the area.

 

Subsequently the overvaluation of new property will effectively raise the value of adjacent properties and if spread across a large area will influence the entire area and subsequently adjacent areas. This principle can continue at infinitum.

 

Whilst this concept initially provides financial stimulus and economic benefits it is relatively short term as eventually the “Piper” has to be paid and we now all have to pay the “Piper”

 

It is alleged the stimulation was based on fraud with a resultant shortfall which can be demonstrated by evidence, making the general population the victim of wholesale fraud and the roll of “Piper” clearly identified as the Bankers and associated financial services.

 

As with any fraud, it is the victim who invariably suffers the cost.

 

In usual circumstances when evidence of fraud is identified and submitted to investigating authorities the perpetrators are pursued, but apparently not in the case of Bankers who are subsequently bailed out of financial difficulty and rewarded handsomely.

 

The basic principle for the execution of any fraud is to hide the simple truth with a shroud of intricacy and a web of complexity whilst in reality it is no more complex than an onion, whereby by peeling back the layers you get to the heart of the matter.

 

It is therefore necessary to peel back the layers and identify the objectives, benefits, consequences and associated questions for each layer.

 

In general terms the financial crises has been attributed to the “Sub-Prime Mortgage Market.”

 

By definition a Sub-prime Mortgage is an agreement between a lender and a borrower who does not qualify for loans from mainstream lenders because of high risk factors primarily attributable to low credit scores. Such a loan attracts a higher interest rate proportionate to the risk.

 

Initially Sub-prime lenders were independent from Mainstream lenders but as the market appreciably increased they became affiliated to Mainstream lenders and it was rare for either to identify themselves as being sub-prime lenders.

 

It therefore begs the question as to why mainstream lenders would wish to entertain high risk loans.

 

It is submitted the answer to this complex question will become apparent as the various levels of the fraud are unveiled.

 

In broad terms it is alleged to be a ploy to manipulate the market to such an extent that the consequential attracted benefits to the value of low risk prime-mortgages outweighs the potential risk of the originating sub-prime mortgage.

 

This market manipulation subsequently increased the asset value of normal Mainstream mortgages resulting in a substantial increase in property equity which was then targeted by the Banks with high profile advertising offering further loans to property owners with prime-mortgages.

 

In simplistic terms the sub-prime mortgage operated as a loss leader.

 

It is worthy of note that such advertising was rapidly withdrawn suddenly, before any announcement of the crisis.

 

The second most important question is in relation to the Sub-prime borrower who is an essential component in the manipulation of the market.

Why would a prime-borrower in a position defined as being considered high risk due to a low credit rating wish to enter into an agreement attracting such high interest repayments.

 

It needs to be appreciated that to successfully manipulate the market requires a high volume of participation and as a means to achieving this objective it is necessary to offering an incentive to participate.

 

The following now demonstrates both the means and the incentives associated with the chosen vehicle, namely the new build, buy to let market which was being actively encouraged by governments to solve housing shortages.

 

The following submission is based on documented evidence obtained from an investigation of two small areas in Kent and is merely a very small tip of a massive financial iceberg.

 

Continuing with the principle of peeling back the layers of the fraud it is necessary to demonstrate the complexity of the roll of the developer, building the buy to let properties which form the foundation of the fraud.

 

It should be appreciated in general terms, regardless of the size of a particular development it would invariably be released for sale in three phases, the reasons for which will subsequently become apparent.

 

It should also be appreciated the sales value of such properties are independent of the associated development costs for land and associated construction but reflect the current comparative property values within the area of development invariably returning a high profit margin.

 

We now have the first material element of the fraud which now requires a participant.

 

Participation is achieved by offering incentives to potential buy to let investors in the belief rental income will satisfy mortgage repayments together with a substantial initial financial capital gain at the outset.

 

This is achieved by collusion between the buyer, developer, agent, solicitor and the lender.

 

As the lender is reluctant to identify between sub-prime and mainstream mortgages and buy to let or owner occupied mortgages they will be referred to merely as mortgagees.

 

The first stage of the fraud is the initial capital gain which is a combination of incentives from both the developer and the mortgagee in the form of a discount from the developer for buying off plan prior to completion coupled together with a 120% mortgage from the mortgagee.

 

The usual discount for buying off plan amounted to 20% of the marketing value of the property.

 

The following calculation is based on evidence obtained in relation to specific new build, buy to let, properties in Gravesend, Kent.

 

A two bedroom self contained flat valued at £160,000

 

Developers discount to buyer @ 20%                        £  32,000

 

Price Paid to Developer                                              £128,000

 

Mortgage arranged by Broker:-

Mortgage valuation:

Based on sales market value   £160,000

 

Mortgage granted @ 120% =                                     £192,000

 

Resultant Capital Gain:

Income from mortgage                                               £192,000

Price Paid to Developer                                              £128,000

 

                                                Capital Gain              £  64,000

 

This gain is subject to the deduction of unknown professional fees for completing the transaction.

 

Upon completion the “price paid” as recorded with the Land Registry is indicated as the full value of the mortgage which in this example is £192,000.

 

The investigation revealed a total of 74 properties were purchased on this basis over a period of 18 months.

 

The total capital gain before deduction of fees equates to approximately £4,800,000

 

The above was perpetrated by three individuals who in most instances failed to notify the mortgagee the properties were acquired on a buy to let basis.

 

Furthermore investigations with The Land Registry indicated it is an option that either the vendor or purchaser may file Title of the property. In these instances the responsibility was accepted by the purchaser and it was the responsibility of the purchaser or his agents to file title with the Land Registry requiring the stated price and name of lender or lenders having a charge on the property.

 

This now brings to the fore the next stage of the fraud.

 

The submission is the price stated within the title should be the current market value as paid prior to discounting forming the declared valuation and not the full value of a 120% mortgage. Furthermore the charges on the property title should reflect a mortgage to the value of 100% of the market value together with a second unsecured charge in respect of the additional 20%.

 

The practice of registering the price paid as the total of a 120% mortgage is fraudulent and as property prices are determined by comparison of land registry prices paid, inflates the market by deception.

 

When extrapolated the foregoing examples of deception explains the attractive proposition for developers to release properties in three phases.

 

Taking the figures from the above example the significance can be appreciated as follows:-

 

Phase 1

Market Value based on local comparison                   £160,000

 

Phase 2

Market Value

Based on Land Registry Title Prices Stated

For properties sold in phase 1                                     £192,000

 

This equates to £153,600 after 20% discounting which in turn reflects a discount of 9.6% of the original development sales value.

 

Following the principles applied to phase 1, the value of a 120% mortgage applied to the market value of phase 2 equates to £230,400

 

This provides an associated capital gain of                 £76,800

 

Consequently, title is filed with the Land Registry with an indicated price paid of £230,400 an overvaluation of 44%

The process is then repeated for phase 3.

 

Phase 3

Market Value

Based on Land Registry Title Prices Stated

For properties sold in phase 2                                     £230,400

 

This equates to £184,320 after 20% discounting which in turn reflects a profit of 15.2% on the original development sales value.

 

Following the principles, the value of a 120% mortgage applied to the market value of phase 3 equates to £276,480

 

This provides an associated capital gain of                  £92,160

 

Consequently, title is filed with the Land Registry with an indicated price paid of £276,480 an overvaluation of 72.8%

 

The resultant effect of the above process results in a material increase on identical properties from £160,000 to £276,480.

 

An increase of 72.8% THE PERCENTAGE of DOOM

 

The concept of 20% discounts and associated instant capital gains maintained an attractive proposition for participants to ensure continuity and the practices adopted in relation to filing titles with the Land Registry created the illusion of long term investment gains by comparing gains in property values across the 3 phases.

 

The concept of the developer offering a 20% discount across three phases also created an illusion in that based on each phase being of equal content in terms of numbers of properties in each phase the actual discount amounts to:

 

Originating sales value =                                 £160,000

 

Phase 1 sold @ £128,000

Phase 2 sold @ £153,600

Phase 3 sold @ £184,320

 

This reflects an average price of £155,300 amounting to a average discount across the total development of approximately 3%.

 

The foregoing is a specific example of what subsequently proved to be a widespread practice.

 

During the course of 2007 all the properties within the portfolio studied were repossessed and tenants evicted.

 

The initial belief was that this was an isolated incident involving mortgage fraud and obtaining money by deception in respect of rent paid in advance for properties where possession orders had been granted prior to the commencement of the tenancy.

 

Possession orders were subsequently followed by eviction orders where it transpired the tenant had no legal rights in relation to being evicted, resulting in not only loss of tenure but considerable financial loss in respect of advanced rental payments.

 

Possession orders were subsequently followed by eviction orders where it transpired the tenant had no legal rights in relation to being evicted, resulting in not only loss of tenure but considerable financial loss in respect of advanced rental payments.

 

During this period further properties on a major three phase development in Maidstone, Kent were found to be subject to the same procedures and consequences as outlined in the foregoing example.

 

In November 2007 as a consequence of this discovery together with the volume of repossessions going to auction advice was sought from a specialist mortgage broker.

 

It was somewhat amazing and disconcerting to be advised the practice as outlined was not only widespread but to use the terms of the broker he had client’s queuing around the block waiting for similar opportunities as it was any easy way of making a fast buck.

 

It was then apparent this was not just a local issue but a national issue with considerable consequences, as subsequently confirmed.

 

On the 28th January 2008 an email was sent to Prime minister, Gordon Brown requesting guidance from 10, Downing Street as to how best to submit highly sensitive information for his personal consideration.

 

Within the email was the phrase “I truly believe the information and evidence within my possession is most significant and relevant to the economic stability of the Country”.

 

Apart from an electronic acknowledgement of delivery no reply was ever received.

 

In March 2008 the situation concerning properties in the Gravesend area was reported to the Police based in Gravesend, Kent and a complaint filed.

 

This was subsequently transferred to the Fraud office of Kent Police based in Dartford and on the 16th April 2008 a formal statement was provided for investigation purposes.

 

Some four months later Kent Police advised that following investigations with the associated Banks and Building Societies the lenders claimed they had not been subject to fraudulent processes. They further advised that the question of losses associated with pre-payment of rent was a civil not criminal matter.

 

As it was not possible to identify a specific victim of fraud the investigation could not proceed any further. The fact the lenders were in theory co-conspirators was not recognised and investigations ceased.

 

There can be little doubt the Lenders were deliberately manipulating the property market with the intention of making significant financial gains.

 

During the whole of this period the media was saturated with advertising from lenders offering substantial loans not only in respect of new purchases but in respect of loans against accrued equity on existing owned properties.

 

It will be noted that such advertising ceased just prior to Government announcements of the Banking crisis.

 

Returning to the property portfolio in question, this is a record dated 31st January 2008 of the proceeds of sales following the repossession process:

 

Case No.	Proceeds	Outstanding	Book
	of Sale	Balance	Value
26689A	115,000.00	65,264.24	180,264.24
26690A	115,000.00	66,017.53	181,017.53
26691A	115,000.00	84,488.96	199,488.96
26692A	115,000.00	83,716.71	198,716.71
26693A	115,000.00	82,461.66	197,461.66
26694A	115,000.00	85,613.42	200,613.42
26754A	137,500.00	42,668.79	180,168.79
26387A	118,500.00	59,210.00	177,710.00
26388A	115,000.00	61,231.11	176,231.11
26389A	115,000.00	63,456.84	178,456.84
Totals	1,176,000.00	694,129.26	1,870,129.26

 

 

This indicates a total loss in respect of 10 properties to the value of £694,129.26 equating to 37.11%

 

Indicating a total loss for 74 properties being in the region of £4,859,000

 

The mortgages as tabled were held by Mortgage Express Ltd. Administrative agents and wholly owned by the Bradford & Bingley Building Society.

 

Mortgage Express Ltd were authorised and regulated by the Financial Services Authority except for their “buy to let mortgages” which were not regulated.

 

The losses incurred roughly equate to the cash incentive offered to the purchaser which clearly demonstrates the over-valuation and the consequence of the fraud being perpetrated.

 

It has to be pointed out that the purchaser was operating within the law and merely taking advantage of the options on offer together with the subsequent default in respect of repayments.

 

In the absence of any meaningful response or action from the Office of the Prime Minister or the Police, further representation was made to two conservative Members of Parliament.

 

Around the 14th May 2008 a meeting was held with Adam Holloway, Conservative MP for Gravesend.

 

Adam was extremely interested and paid close attention as the outline and the concept of the fraud together with the potentially adverse effect upon the national economy were explained.

 

At the conclusion of the submission his comment was that this cannot be possible.

 

At this juncture it is necessary to give credit where credit is due, because following the in depth submission he made a phone call to an advisor with the simple question was the submission possible.

 

The reply he received was that it was not only possible but being carried out on a very large scale.

 

The concept is complicated and intricate and it is therefore not unreasonable that without specific knowledge a MP would not necessarily be aware.

 

An assurance was given that Adam would make a detailed representation to HM Treasury.

 

It was also explained in the absence of a response from Downing Street and the Police attempts had been made to secure publicity from various media outlets, all to no avail.

 

The matter was referred to a reporter based in France working for “Money Mail” The Mail on Sunday. The initial response was that of excitement at the potential of such a story but it was soon quashed by the editor on the grounds that such scams were two a penny, missing the point completely either by design or through ignorance.

 

During the discussion the consequences upon tenants were highlighted in that a default by the Landlord in respect of maintaining mortgage payments resulted in repossession and under such circumstances the Tenant had no rights or redress other than via civil proceedings for a claim for loss and expense from the Landlord.

 

It was requested that consideration be given for the following provisions within legislation:

 

• Landlords should be licensed and registered.
• Banks should be forced to confirm necessary consents for tenant occupation.
• Land Registry “Price Paid” should be recorded by vendor only and record the price received by vendor. Any other additional monies in respect of mortgages or charges should be listed separately.
• County Court Judgements in respect of Repossession should be filed with the Land Registry.
• There should be a data base link between the Land Registry and Local Authorities in respect of Council Tax such as to indicate variations between owner and occupant. Landlords should register with the Local Authority declaring an interest in the property. This would identify instances where residential mortgages have been obtained for letting purposes. When a tenant vacates there is often no record as to who is responsible for a vacant property.
• A genuine buy to let mortgage should have the address of Landlord registered in addition to the property address.
• In the event of a tenant being the victim of Landlord mortgage fraud the tenant should be afforded benefits under the Housing Act to be granted the respective time for notice in accordance with the tenancy agreement and during such notice period pay rent to the mortgagee.

 

The subject matter of the foregoing has been purely in relation to buy to let mortgage practices and the associated purchases of purpose built buy to let properties.

 

As the practices were widespread it is inconceivable that neither the HM Treasury nor the Financial Services Authority were aware of such practices and the associated consequences.

 

The financial crisis in the UK was first highlighted in relation to Northern Rock who in July 2007 was claiming to be upbeat with their ever increasing share of the mortgage market which stood at 19% of the total market for the period 2006/2007. 

 

This was followed by financial support from the Bank of England and the subsequent collapse of Northern Rock which was finally nationalised.

 

On the 26th September 2008 a copy of the submission previously issued to Adam Holloway Conservative MP for Gravesend, was issued to Andrew Rosindell, Conservative MP for Romford.  He assured he had passed the papers to his staff at the House of Commons and they were looking into the matters raised.

This was circumvented by a request from Kent Police to attend a meeting at Maidstone Police Station with the “Special Operations Directorate”.

 

At the meeting and subsequent to the meeting copies of all reports and the substantiating evidence was provided.

 

During the course of the meeting the opportunity was presented to ask a question and the question was asked “Is this matter subject of a ‘D’ notice”. No reply was given other than a facial expression which was hard not to interpret.

 

There has been no further response following the submission and that is where the matter rests with respect of the authorities.

 

The concept so far outlined is merely one element of Banking processes and a practice which in principle has been traded and executed on a Global basis for the sole purpose of accruing substantial profits to the Banks. This element was based on the presumption that global finance would be available and property values would continue to rise substantially.

 

It is difficult to conclude this was the result of a few rouge traders manipulating the market for short term gain when in fact it had to be organised to have such global consequences.

 

A similar argument has been presented in relation to manipulations of the LIBOR rate used as the barometer for international banking lending rates once again in the self interest of Bank profits and subsequent bonuses.

 

These practices amount to domination by stealth and are affecting national economics which undermine governments and their ability to control budgets.

 

The whole concept amounts to gambling now referred to as Casino Banking where Governments answers appear to be to provide more money via quantitative easing or international bail outs thereby providing more Casino chips in the belief that eventually the gambler will win.

 

The money for quantitative easing in the UK is approved by the Treasury and provided by the Bank of England purchasing assets and government bonds such as pension funds which are subsequently devalued thereby generating deficits in the respective pension funds due to low interest returns.

 

In other words pensions are devalued and the pensioner suffers the loss which is particularly relevant to the “post war baby boomers” reaching retirement age post financial crisis.

 

One can’t help drawing the analogy of a friend sitting at a Casino having lost his money set aside for his rent or mortgage payments asking his friends to have a whip round so that he can purchase more chips in the belief if he plays long enough he will eventually win.

In the meantime his friends are reading a publication sponsored by government, detailing gambling awareness and the need for responsible gambling.

 

If common sense prevails you walk away and cut your losses, which is all very well if you are playing with cash.

 

The advancement of computer technology particularly within the Banking Industry has generated a global casino where the participants can play various games continuously rather like an amusement arcade.

 

Note the term “Industry” it used to be a profession when the Bank Manager could sign your passport application.

 

In the 1960’s most people received a weekly pay packet containing cash and the concept of a Bank was it was where you put your savings to keep them safe the aspect of receiving interest being an added bonus.

 

It was during the early 1960’s with the first introduction of computer technology the Banks had a major drive convincing employers to pay employees via a bank account as this would save on payroll costs. Employees were equally encouraged and attracted with free banking to open bank accounts.

 

Gradually this developed to the point virtually all forms of income are now via a bank account of one form or another.

 

In those early days the general understanding was that the Bank would hold your money on deposit any surplus would be available for the bank to lend.

 

The whole concept was based on real assets either in cash or viable assets thereby guaranteeing the Bank’s value.

 

When you went to the bank for a loan and as it is now you are required to guarantee the value of the loan with an identified asset having the required value.

 

A crisis is created when the value on paper does not match the asset value in real terms and a bailout is no more than purchasing valueless paper.

 

How and when will the money be repaid?

 

Does austerity really work?