Experts See More Identity Theft and Application Fraud

There has been a notable increase in mortgage identity theft and application fraud, according to fraud prevention technology vendors who spoke as part of a panel on high-tech lending fraud recently.

"A year-and-a-half ago we started doing fraud identity theft seminars," Nigel Keniry, Midwest sales manager for Sysdome, Calabasas, Calif. told attendees at the Illinois Mortgage Bankers Association Taste of Technology Conference here. "Back then the instance of this kind of fraud was one in 20, six months ago it was one in 10 and now it's about one in eight. It's truly an epidemic."

D. James Croft, founder and CEO of Mortgage Asset Research Institute, Reston, Va., added that a recent study conducted by the Federal Trade Commission indicated that "in the last five years 27 million people in the U.S. had been victims of identity theft," he noted. "In 2003 alone, the amount of reported identity theft grew by 36% in one year."

The FTC report also estimated business losses of nearly $48 billion and consumer expenses of $5 billion due to this type of fraud. Also, the report concluded that it takes victims more than 200 hours of work spread over two years to four years to clear up their credit after fraud has been perpetrated on them.

The sixth annual MARI case report on fraud to the Mortgage Bankers Association distributed at the conference noted that the problem of identity theft goes beyond assuming a customer's identity.

"MARI has received several reports of incidents where the identities of mortgage industry professionals have been stolen and used in conjunction with the origination of fraudulent loans," said the report. "The identities of Realtors, loan officers and appraisers have been used by fraudsters as they impersonate mortgage professionals."

So, how does one keep their identity secure? "You can shred everything you want," said Connie Wilson, executive vice president at Weldon Spring, Mo.-based Appintell. "There are a lot of things that people talk about to prevent being a victim nowadays. On a humorous level, I think the best method is to have a really bad FICO score, because who wants it?

"Honestly though, there is no full-proof way to protect yourself," she continued. "If I have your address, it's very easy for me to get your Social Security number and anything else I need to assume your identity."

One contributing factor that the panelists noted as contributing the rise in mortgage fraud is various technology advancements. "Advancements in technology have contributed to the ease at which identity theft can be perpetrated," said Ms. Wilson. "There are so many websites that I can go to, put your name and address in and get your Social Security number from. Before, I had to work harder."

Also, the rewards for fraudsters are greater in today's market as well compared to other types of fraud. "The average credit card loss is $3,000," pointed out Ms. Wilson. "The average mortgage fraud loss is over $100,000.

"So, if I were going to perpetrate a mortgage fraud, I wouldn't do it in my name," she continued. "There's more opportunity because of increased technology and technology available. Also, the profits involved are some of the biggest driving forces as well."

Application fraud remains high as well according to the MARI report. The MARI MIDEX System reported that application fraud has amounted to over 60% of fraud reported within the past four years.

Again, technology advances have made application fraud easier as well. "There's a direct correlation with the quality of printers and the rising instance of mortgage identity and application fraud," said Mr. Keniry. "Also, as the quality of copies produced by modern printers [has] increased, the propensity for fraud has increased as well. Printers can create documents that look more real."

"There isn't a single document in a mortgage loan file that I cannot create using Excel," added Ms. Wilson. "I can create everything including the credit report, the title policy, the appraisal, and anything else in the loan file."

The final contributing factor to an anticipated increase in these two types of fraud is the switch in the market from refi to purchase and the slowing of housing appreciation going forward.

"In the Las Vegas area, they might list a house for $250,000 and get $300,000 simply because there's so much demand, but the problem is that once the building in that area affords enough housing the appreciation value is going to slow, which will cause an increase in fraud," said Ms. Wilson.

Congress has responded to this issue as the panelists reported that there is talk about assigning a code to each Social Security number.

What this will do is give someone access to the code assigned and not the direct Social Security number to reduce the number of people in the mortgage process that have access to vital information that can be used to commit acts of fraud.

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