Banks hit by mortgage scam

A mortgage scam involving inflated house sale prices is understood to have fleeced large amounts of money from banks.

Few details of the scam, including the amounts involved, have come to light, but Westpac confirmed yesterday it had referred at least one case to the Serious Fraud Office.

Real Estate Institute national president Howard Morley said the scam involved people applying for mortgages using a fraudulently obtained or altered sale and purchase agreement with inflated sale prices.

The institute became aware of the scam after some banks began calling agents querying the sale price of individual properties in Auckland and Waikato.

The price stated on documents and provided to the bank differed from the actual price paid, Mr Morley said.

"We understand that some lending institutions have suffered significant losses. We have no evidence of widespread malpractice, but the police and the Serious Fraud Office are involved."

Though real estate agents would be involved in some of the affected transactions, in most cases they had been unsuspecting third parties, Mr Morley said.

Bank of New Zealand spokesman Owen Gill said that the bank became aware of "irregularities in a handful of home purchase agreements" earlier this year.

Loans were being extended on houses at prices that were allegedly inflated by "criminal or fraudulent means".

Extra staff training and procedures were put in place to prevent further similar frauds.

The bank had referred three cases involving false sale values to authorities for prosecution in the past two years, Mr Gill said.

The offences did not amount to a serious systemic problem in the home loan market.

Mr Morley, who is a registered valuer, said competition for mortgage customers meant some banks no longer required independent valuations before extending loans, relying on the sales agreement alone.

- nzpa