The Chelsea Building Society has revealed it has lost £41m ($67m) as a result of mortgage frauds involving some of its buy-to-let loans.
BBC.co.uk – 21 August 2009
The frauds are the main reason for the society staying in the red, with overall losses of £26m in the first half of the year.
The frauds appear to have involved professionals colluding to inflate the value of buy-to-let properties.
The society says the losses emerged after a review of all its loans.
“The society has been through a difficult period and reporting a loss in the first half of the year is disappointing,” said Stuart Bernau, the Chelsea’s chairman and interim chief executive.
“However, the underlying performance is strong, even though we have had to make provision for impairment and fraud losses.”
Last year, the Chelsea lost £39m, the largest annual loss yet recorded by any building society. Its chief executive agreed to resign earlier this month.
The Chelsea explained that the potentially fraudulent loans it had discovered were mainly among buy-to-let loans made between 2006 and 2008.
It said they were mainly due to “the artificial inflation of property values by third-party professionals involved in the transactions”, such as mortgage brokers and surveyors.
“This is not a massive number of individuals,” said Jeremy Hicks, a spokesman for the society.
He said it had decided to review all its mortgages after losing money with Icelandic banks last year, and had discovered some mortgages that fitted the profile of potential fraud cases.
As a result, the society concluded that it had to set aside £41m in case the suspect loans were crystallised as cash losses.
A team of 12 to 16 people are now going through these cases individually to see if fraud has been committed.
“This could take some time,” Mr Hicks said.
