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One damn’ thing after another for Chelsea Building Society

August 21, 2009

It’s been an exciting time for the Chelsea Building Society, always something of a maverick in this usually staid sector. In April it owned up to a 55 million pound exposure to two of the failed Icelandic banks. Last month 70-year-old Trevor Harrison departed after three years as chairman, giving way to Stuart Bernau, a building society professional from Chelsea’s larger rival, Nationwide.

There was nothing in the routinely back-slapping press release to indicate trouble. There was even less in the one-line statement a fortnight ago that Chelsea’s chief executive, Richard Hornbrook, was leaving. It didn’t even say when he was going, but Bernau has stepped up to interim chief executive.

On Friday the society revealed that finance director Andrew Parsons is also off, to “take up a new position with a colleague he previously worked with.”

The society’s upbeat half-year report was quite spoiled by the revelation, a long way down the statement, of a charge of 41 million pounds for mortgage fraud. This is every mortgage lender’s worst nightmare, and it is all too easy, especially in buy-to-flip (buy to let).

The lawyers, surveyors and lenders are all supposedly there to check that the buyer is getting what he expects and that the bank has a fair view of the risk. In practice, the tendency is to assume that someone else in the process has done the work. It only takes one fraudster at the centre of the process to dupe everyone else.

As the Chelsea statement puts it: the fraud “is mainly as a result of the artificial inflation of property values by third party professionals involved in the transactions.” In theory, the society can now come after these professionals and their governing bodies. Don’t hold your breath.

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