In the well-known balcony scene in Shakespeare’s “Romeo and Juliet,” a love-struck Juliet asks, “What’s in a name? That which we call a rose by any other name would smell as sweet.”
While that might be true for teenagers and roses, names are a first step for bankers to establish a critical component in lending decisions: the identity of the person seeking a loan.
The Collins English Dictionary defines identity as the state of having unique identifying characteristics held by no other person or thing; the individual characteristics by which a person or thing is recognized.
When your applicant’s name is Dogsbreath Glimerdoodle, a name might be enough to go on since it’s unlikely that more than one individual with this particularly unfortunate name will be walking the earth at any given time. Establishing the borrower’s identity is more challenging when the name is more—or very—common. Additional data points, like date of birth, address, Social Security number, and a copy of the driver’s license will be needed to help establish that the applicant is who she says she is.
Unfortunately, with the rise of the Internet, personal computers and high-quality printers, the documents lenders rely on to establish a borrower’s “unique identifying characteristics” have become increasingly easy to manufacture and to buy.
From websites that offer “novelty” passports and driver’s licenses (including holograms on payment of a small upcharge) to entrepreneurs on Craigslist who promise to deliver “high quality” fake IDs (and bank, investment, utility and corporate financial records), it doesn’t take much time or money to fabricate an identity, or to obtain the documents needed to support a stolen identity.
The rise in the number of purveyors of false identification documents in recent years are one reason that reported incidents of identity theft (use of another’s financial identifiers without the rightful owner’s permission) and identify fraud (the identity is completely fabricated and is not tied to any true-named individual) are on the rise.
In its latest report on the subject, FinCen noted that the number of mortgage fraud-related SARs that also involved a perpetrator who used a stolen identity to facilitate the mortgage transaction doubled between 2006 and 2008.
The Interthinx Mortgage Fraud Risk Report for 3Q 2010 noted that identity theft was up 20% from the previous year. Investigators and law enforcement sources report that this often occurs in connection with so-called frauds for property involving a friend or relative who stands in for borrowers whose credit profiles prevent them from qualifying for the loans.
In a recently reported case, a former Rhode Island real estate attorney and former state senator used his elderly grandmother’s identification (and fabricated tax and bank statements) to get a mortgage. Identity theft is also a problem in connection with “for profit” schemes where the perpetrators pay the “borrowers” for the use of their identifiers. In these cases, the identities are also often used to obtain credit cards and car loans and to open bank accounts.
Short of demanding DNA samples, how can identity be established during the prefunding phase of a mortgage loan?
In some cases, when one has the opportunity to meet the applicant in person, all it may take is common sense. In a case in Atlanta some years ago, the perpetrator stole the financial identifiers of his father-in-law. He recruited a stand-in, obtained a fake driver’s license, and sent in an application that claimed that the borrower was the bishop of the Greater Grace Baptist Church who was making in excess of $150,000 per year. But the “bishop” who turned up at the closings (for the mortgage and for loans to buy two Mercedes) was dirty and had a lot of missing teeth. After the loan went bad, the lender discovered that the person who attended the closing was a homeless man who had been living under a bridge. Had the settlement agent used some common sense (No teeth? No bath? Making more than $150,000?) and asked more questions, the false identity might have been discovered before the money walked out the door.
Since many lenders conduct business across multiple state lines and/or through the Internet, face-to-face meetings are obviously not always possible. In these cases, a good place to start is with the Social Security Administration, which can tell you if the social security number was ever issued, when and where it was issued, and if the number is associated with a death benefits claim.
A rigorous examination of file documents supplied by the borrower—bank statements, W-2s, pay stubs, letters of reference and/or explanation—and the credit report, with an eye to the consistency of demographic information like addresses, phone numbers, and employment type, is a time consuming but effective first step in establishing identity.
Investigative online tools can add additional points of data reference to show, or disprove, the information in the credit underwriting package. Fraud prevention tools that incorporate these online resources, layer in advanced name matching analytics, cross-check with historical loan information across lending channels and HUD, FHA and lenders’ exclusionary lists, also go a long way toward establishing the borrower’s unique identity.
And of course, strong closing instructions to settlement agents detailing what will and won’t be accepted (i.e., no powers of attorney), specific instructions on what to do (i.e., look at both sides of the identification document since sometimes fakes note on the back that they’re “novelty” products, or asking the borrower what their sign is since a fraudster will probably remember the fake birth date but have no idea where it falls in the astrological calendar) and an insured closing protection letter can help prevent the frauds and protect you if things go wrong.
Taking the time to establish the identity of your borrowers means you’re more likely to make loans that smell like roses.
Ann Fulmer is the vice president of industry relations for Interthinx.
