As prices in the UK housing market continue to tumble, more and more cases of mortgage fraud are being uncovered.

However the problem is far greater than a few dodgy brokers bending the rules for their clients – a police intelligence report has found mortgage fraud amounts to £700 million a year and could be helping fund terrorism and organised crime in the UK.

One common ploy is for fraudsters to use corrupt surveyors to over-value properties, so they can apply for loans larger than the value of the property, pocketing the difference.

False names and false documentation, often bought online, supported these applications.

In an attempt to tackle to the problem, the Financial Services Authority (FSA), the UK’s chief financial regulator, has now banned 13 mortgage brokers and one mortgage introducer for submitting false applications for mortgages and it is certain that many more cases are currently working their way through the system.

While mortgage fraud can take a variety of forms, it has thrived in the lax lending environment of the recent credit boom and a property bull market.

Lenders competed fiercely to people onto the property ladder, to the extent of offering self-certification mortgages giving up to five or six times a borrower’s estimate of their earnings, an obvious recipe for disaster.

As a corollary to this madness, one newspaper last weekend carried a story of over-stretched borrowers now using the credit cards to keep up mortgage repayments – something that can only end in tears.

Now that the credit crunch has bitten and with houses prices falling, lenders have woken up the problems such as mortgage fraud.

A cynic would comment that mortgage fraud is something lenders happily ignored in the good times, but how they want excuses to pull the rug from over-exposed borrowers, or blame someone else for their woes.

At CoreData Research in the UK, we have seen the warning signs of moral decay in the mortgage market.

For years, mortgages were inadequately regulated, with lenders applying arbitrary charges and restrictive terms.

Mortgage broking was seen as refuge for those side-stepping the tighter regulations and higher qualifications needed in other areas of personal finance, while trade journalists regaled us with stories of the lavish hospitality of mortgage firms.

As one personal finance hack commented a while ago: “If you like visiting lap-dancing bars, you should cover the mortgage market”.

And while carrying out research for a UK personal finance awards event recently, CoreData found evidence of vote-rigging in favour of some mortgage providers, either by mortgage brokers themselves or unscrupulous lenders borrowing their details.

One thing is for sure though…

The housing market may suffer for a few years, but people will not fall out of love with home ownership.

Unlike pensions, property itself will be not be tarnished by scandals in the mortgage market, although given the direction of the UK market mortgage brokers could well be on their way to joining timeshare sharks and pyramid sales conmen in the stakes for being the most sleazy and distrusted of all professions.