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Combating Mortgage Fraud Aimed at Falsely Raising Credit Scores

November 5, 2015

Stop Fraud

Who doesn't want the highest credit score possible to garner the most-favored terms? 

For many Americans with consumer credit negatively impacted by the housing crisis and fluctuating economy, it's easy to be lured by the promise of a raised credit score.

Schemes that falsely raise credit scores will land borrowers in scalding hot water - as well as cost you time and money combating both origination- and servicing-related fraud.

We want to raise awareness and help you combat this type of mortgage fraud.

Three Fraud Schemes Aimed at Raising Credit Scores

Consumers and the mortgage industry should watch out for any person or credit repair service trying to "help" with one of these three common fraud schemes:

1. Disputing Credit with Credit Bureaus

If you've ever faced a mistake on your credit report, you know how hard it can be to fix. As The New York Times reported earlier this year, the good news for honest consumers is that the biggest credit bureaus are improving their error fixing processes. Before they apply for a mortgage, consumers can now check the FICO credit score versions most mortgage lenders are likely to see.

This isn't good news for lenders, though, since fraudsters may play the system to illegally gain access to mortgage funds. They may direct a borrower to contact credit repositories repeatedly to dispute previously defaulted debt. The fraudster hopes the creditor will miss responding to one of the disputes and the defaulted debt will disappear temporarily, triggering a jump in the borrower's credit score. The borrower may qualify for - and close on - a new mortgage before the credit report correctly reflects the defaulted debt and the borrower's true credit score.

2. Falsely Claiming Identity Theft

There's a lot of information on mortgage application "white lies," but very little on another deception: claiming someone stole your identity, in an attempt to remove debt from your credit report.

Some borrowers who falsely claimed identify theft have gone as far as providing affidavits of identity theft and police reports. Of course, lenders take these claims seriously and investigate. In some instances, they discover that the "police report" is fake, never actually filed, or from a police department that doesn’t exist. Remind your borrowers that falsely claiming someone stole their identity is as bad as stealing someone else's identity.

3. Misusing Credit Protection Numbers

A Credit Privacy Number (CPN) is a nine-digit number that can be used in lieu of a Social Security number (SSN) for credit reporting and other financial purposes, like applying for a loan. Given that it helps shield your finances from the public eye, it's most commonly used by borrowers in the public eye, such as celebrities and politicians. But some consumers with poor credit acquire a CPN with the intent of creating a new, clean – and misleading - credit profile. It’s important to keep in mind:
  • This is an illegal use of a CPN;
  • CPNs were not created for this purpose; and
  • Mortgage loans originated using a CPN are ineligible for sale to Freddie Mac.  
  • Borrowers who use a CPN with the hope of leaving their bad credit histories in the rear view mirror are in for a rude awakening. As the Federal Trade Commission bluntly points out, "By using a stolen number as your own, the con artists will have involved you in identity theft," for which you may face legal trouble.

What You Can Do to Combat These Types of Fraud

By raising awareness of these scams and encouraging borrowers to make smart choices, you can steer them away from decisions that may lead them down the wrong path. Remind your borrowers that:

  • Credit scores aren't used unfairly to block them from accessing credit; their purpose is ensuring successful repayment of borrowed money. Ploys to circumvent official credit controls will likely set up consumers to fail.
  • The best way of raising and maintaining a healthy credit score is by consistently paying bills on time. A quick jump in credit score is never worth the stain on their records.

Together We Make a Difference

The Financial Fraud Investigation Unit is at the forefront of our mortgage fraud mitigation efforts and is committed to helping the mortgage industry fight fraud. Your continued efforts toward fraud prevention, detection and reporting are critical in the fight against fraud. Thank you for your vigilance.

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