Identity thieves moving into mortgage loans

Identity thieves are stealing a little piece of the American Dream.

Experts say con artists are increasingly using innocent consumers' personal information to commit mortgage loan fraud.

"Identity fraud has now swarmed in full force to infect the mortgage loan application process with fraudulent credit scores, invalid Social Security numbers and even deceitful mortgage brokers stealing from their former clients," said Terrence DeFranco, chief executive of Edentify Inc., a Pennsylvania-based identity fraud detection firm.

So-called Suspicious Activity Reports involving mortgage loan fraud soared 1,411 percent between 1997 and 2005, according to a report this month by the Treasury Department's Financial Crimes Enforcement Network.

"Identity theft was frequently reported in conjunction with the commission of suspected mortgage loan fraud," the report said. "Reports of identity theft increased nearly 102 percent between 2004 and 2005."

What that means is that someone can obtain a mortgage in your name if they have personal information such as your Social Security number, name and date of birth.

"This information is not difficult to get," Mr. DeFranco said. "Once you steal the identity of an individual, you essentially own them. You become them."

Anyone who's gone through the rigorous mortgage approval process might find it hard to believe that it would be easy to get a home loan under false pretenses.

"Because the amounts are so much more significant in a mortgage transaction, clearly more identification documents are required," said Corey Carlisle, senior director of government affairs at the Mortgage Bankers Association. "Banks especially are under significant guidance from their regulators to do what's known as 'Know Your Customer.'

"If there is falsification involved, there's usually a conspirator in the process, somebody who's pretty wise to the system."

Verifying identity

Dallas mortgage banker Craig Jarrell said in such cases, "the appraiser's in on it, the mortgage guy's in on it."

"Everybody gets a cut," said Mr. Jarrell, president of the Dallas region of Pulaski Mortgage Co. and president of the Dallas Mortgage Bankers Association. "All your defenses are compromised, because all the parties are corrupt."

The insiders really hurt the system because they "know how to exploit the complex residential finance system at the expense of lenders, taxpayers, consumers and communities," the Treasury report said.

Mr. Jarrell verifies the identity of borrowers by pulling their credit report, calling their employer and actually meeting the person.

"We don't do things sight unseen," Mr. Jarrell said. "We actually do spot checks. We require you to produce your driver's license at the closing table because we want somebody to ID you in person."

Still, that's no guarantee that something won't slip through the cracks.

"The authentication process still isn't foolproof," Mr. DeFranco said.

Sometimes, the ID theft "victim" and thief are in cahoots.

"I pay you to be my straw buyer," Mr. Jarrell said.

In other words, someone might pay a friend to use their personal information and promises to pay the mortgage, then runs into trouble and leaves the friend on the hook.

Increased opportunities

Experts say lenders themselves have unwittingly created fertile ground for mortgage fraud through identity theft because of exotic mortgages they've created.

One is a "no-documentation" mortgage, which enables consumers to obtain a mortgage without job, income and asset documentation.

"The use of the Internet and related technology to receive and process loan applications is increasing," the Treasury report said. "The growing faceless nature of these transactions increases the opportunities for fraud -- especially identity fraud -- and, coupled with low-document or no-document loans, creates a condition vulnerable to fraudulent activity."

If you think that's only a problem for law enforcement and lenders to worry about, you're right -- unless it's your identity that's been stolen and your credit report that's now carrying a huge mortgage.

Protecting yourself

The best way to protect yourself from identity theft is to check your credit report regularly.

You're entitled to a free credit report once every 12 months from each of the three major credit bureaus -- Equifax, Experian and TransUnion.

You can get your reports by going to www.annualcreditreport .com or by calling toll-free 1-877-322-8228. You will go through an automated verification process over the phone, and your credit reports will be mailed to you.

Order one report from a different credit bureau every four months, so you can spot any inaccuracies in your credit report throughout the 12 months.

If someone has obtained credit in your name, place a fraud alert on your credit file so lenders will know to check with you before granting any more credit in your name.

"If any check is done at all, it's done on a credit report, and if there's no fraud alert on that Social Security number, and the company is not quite aboveboard, they can just process this whole thing through," said Linda Sherry, director of national priorities at Consumer Action. "It's just unfair that in this country, we're supposed to be innocent until proven guilty, but with identity theft, you're guilty until you're proven innocent."