KEY POINTS:
Major trading banks are on red alert after being tipped off about a big house valuation scam in Auckland.
Representatives of Westpac, ASB and BNZ are all aware of the hoax, where banks are being hit by fraudsters who are doctoring valuations to borrow more money than a house is worth.
The Property Institute warned about reports coming in that banks were being presented with false orfictitious property valuation reports, as people attempted to borrow more than a house was worth.
But spokespeople at the large banks said yesterday they were fully aware of the fraud and many loans divisions had already taken steps to ensure their billions of dollars invested in the housing market were safe.
Craig Dowling, a spokesman for Westpac, said the loans division was on alert and the bank preferred to deal with registered valuers.
"If they don't know them, they look a little harder at the loan application."
The fraud was not new and had been tried before, he said.
Applications for significant amounts of money with a high loan-to-value ratio were being scrutinised closely, he said, particularly in light of the tightening housing market.
Banks were also demanding they get valuations direct from valuers rather than an outside party, he said.
"Certainly we're on the alert. It's part of prudent lending."
ASB spokeswoman Debbie Bell said she understood from the investigations team at her bank that two major trading banks had been hit by the scam.
"We haven't been affected, but the way we process our loans is different than the others.
"We do use a raft of different tools and we don't just rely on the valuation so maybe we've more cross-checks and maybe our protection has been slightly better."
She refused to reveal exactly how ASB made investigations into loan applications to avoid fraud, but said the bank was vigilant on this aspect.
A BNZ spokeswoman said she knew of no identified cases of the fraud at her bank.
The institute released details about fraudsters inflating house valuation reports to borrow hundreds of thousands of dollars more than a property's real value.
Blue Hancock, president of the institute which represents valuers' interests, issued a strong warning that people should beware of this latest scam.
Banks must ask for original documents and check the credentials of valuers and their firms before they lend money, he said.
Police and the Serious Fraud Office were investigating the scam which had just emerged, Mr Hancock said.
A number of banks in Auckland are understood to have received the valuation reports but only some made the loans based on the false information.
Mr Hancock said one valuation was altered by several hundred thousand dollars from the original value while another report was totally fictitious on an elaborate but made-up company letterhead.
Ian Mitchell, a property consultant for DTZ in Wellington, said banks were usually extremely careful about written valuations.
Criminals borrow $600,000 on a $500,000 house.
They convince the bank with a false valuation.
They begin paying the mortgage but soon default.
Bank or lender forces a mortgagee sale of the house.
Bank finds it's worth only $500,000.
Bank loses $100,000 after the forced sale.
