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Emerging Fraud Trends: Using Credit Privacy Numbers to Falsify a Credit History

July 18, 2013

As the housing market begins to show signs of the much-awaited sustainable recovery, the mortgage industry can expect home buying activity to continue to pick up, especially with interest rates still at historic lows, rising rental rates, and improving consumer confidence. Along with a rebounding market come new opportunities for fraudsters to take advantage of potential homebuyers. The industry must remain vigilant to re-emerging credit building/repair scams, such as the misuse of credit privacy numbers (CPN) to manipulate credit records.

What is a CPN?

The CPN is a nine-digit identification number that looks like a social security number (SSN) and may be used in lieu of an SSN, for such purposes as obtaining credit.

One has the legal right to keep his/her SSN private. In certain circumstances, consumers are required by law to disclose their SSN, such as to the Internal Revenue Service, employers, when registering a motor vehicle, buying a firearm, or applying for a federally insured loan. In other circumstances, federal law allows consumers to legally use a separate identification number, hence the opportunity to establish a CPN for a credit file.

CPNs are commonly used by celebrities, members of Congress, and witnesses protected by the federal government to help protect their privacy and security.

How is a CPN Used for Credit Fraud?

Often advertised over the Internet, credit repair services offer to build a new credit file for people with bad credit. While some of these services are legitimate, others are not and yet are able to convincingly explain that their process is legal. Unsuspecting customers are typically told that for a fee, they will be given a CPN that they can use in place of their SSN to create a new credit file. While a CPN can be a random selection of nine digits, oftentimes these new CPNs match SSNs belonging to children or deceased individuals, or mimic a valid SSN. This new CPN number, with a new credit file, is then used to intentionally conceal bad credit and misrepresent the customer’s true credit history. Using fabricated information or a stolen SSN to obtain credit that the individual would otherwise not be qualified for constitutes fraud.

How is the CPN Used for Fraud?

  • Perpetrators most often look for dormant SSNs. The numbers are run through public databases to determine whether anyone is using them to obtain credit. If not, the numbers are offered for sale as CPNs for a few hundred to several thousand dollars.
  • Buyers of CPNs are instructed to provide false information when using the number to apply for credit. They are told to use their real name and date of birth, but to avoid listing their current address, phone number, or any other personal information that may connect the new phony credit profile with their old credit record.  
  • Once the CPN is validated that it does not belong to anyone with a credit profile, a new credit file is typically created in the database of credit bureaus.
  • The individual may now apply for new credit from institutions that provide credit to people with no credit history yet. Over a period of time, a clean credit history and a strong credit score is built based on the bogus credit file.

How Can the CPN Scams be Avoided? Red Flags and Best Practices

It is important to remember that for a mortgage to be eligible for sale to Freddie Mac, all information used to evaluate the creditworthiness of a borrower must meet the requirements outlined in our Single-Family Seller/Servicer Guide (Guide). Our Guide also stipulates our requirements regarding the prevention, detection, and reporting of mortgage fraud.

CPN-generated credit profiles may be difficult to identify since a CPN typically mimics a SSN. But there are some practical ways to help spot fraud:

  • Run the loan through Loan Prospector®, Freddie Mac’s automated underwriting system, to help establish a borrower’s credit reputation and creditworthiness. Loan Prospector has a functionality that can help detect falsified SSNs.
  • You can check SSNs against available public records, such as the Social Security Administration's death index, to quickly identify applications that use numbers taken from deceased persons.
  • Ask the borrower if a CPN is being used for the loan application and how it was obtained. Acquiring a CPN is supposed to be a free service; therefore, websites that offer CPNs for a fee are most likely not legitimate.
  • Review the credit report thoroughly, instead of just looking at the credit score. If the credit report indicates that the nine digit number used to apply for credit is not an issued SSN, then further investigation of the borrower may be necessary.
  • Check for misrepresentation. Look closely at all application and verification documents, and cross check information that should be consistent such as one’s SSN. Disciplined underwriting includes reviewing the data for inconsistencies, discrepancies, and reasonableness when information in the entire mortgage file is taken into consideration.  
  • When fraud is identified, alert the proper fraud investigation authorities, including the Federal Housing Finance Agency – Office of Inspector General, Federal Bureau of Investigation the Federal Trade Commission, and the Freddie Mac Fraud Investigation Unit.
  • Stay informed of current fraud trends. Many scams, including CPN fraud, are new variations of an old scheme. By keeping informed about common crimes and emerging fraud trends, you can help prevent perpetrators from further engaging in fraudulent activities.

Important Freddie Mac Fraud Prevention Resources

Take advantage of the following resources to learn more about dealing with fraud.

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