Massive fraud at building society
21 August 2009
The Chelsea building society has revealed it has lost £41m as a result of mortgage frauds by some of its buy-to-let borrowers.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. Last year, the Chelsea lost £39m, the largest annual loss yet recorded by any building society. Its finance director has now joined its chief executive in agreeing to resign.
"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."
The Chelsea explained that the fraudulent loans it had discovered were mainly among buy-to-let loans made between 2006 and 2008. It said the frauds were mainly due to "the artificial inflation of property values by third-party professionals involved in the transactions".
Experts have now combed through all the society's mortgages, searching for actual or suspected frauds, and have come to the conclusion it has lost £41m.
The society said it was now trying to recover the money "vigorously."
The Chelsea stopped making any new buy-to-let, sub-prime, self-certification or commercial loans at the end of last year.
The Chelsea is the fourth largest building society in the UK, with 606,000 savers and 34 branches. Mortgage arrears and falling house prices led the Chelsea to write off a further £12m in the first half of 2009, in addition to the money set aside for the mortgage fraud.
Its directors said the society was "comparatively well-placed" to deal with the problems of potential further losses and the difficulty of attracting savers, amid fierce competition from other societies and banks.
But the directors said they would "continue to review the strategic options available to the society", a phrase often used by managements when they are considering seeking a buyer or a merger partner. source: bbc.com