Harney: Fraud in mortgages on rise, so be vigilant

Other companies that monitor mortgage fraud confirm that fraud has increased and could be headed in worrisome directions. Mark Fleming, chief economist for First American Financial Corp., says the recent massive hack of personal data at credit bureau Equifax, where files on 145.5 million consumers were accessed, could open the door to far more sinister forms of application fraud.

In an interview, Fleming told me that given the unprecedented range and depth of the information stolen in the Equifax breach, “the risk of identity-based fraud and misrepresentation is certainly elevated. To the extent that more people have their information out there,” the greater the danger, he said.

That risk may be increased further by the apparently slow-moving pace of many American consumers to protect themselves from potential mortgage and credit card fraud by freezing or locking down their files at the three major credit bureaus — Experian, Equifax and TransUnion — as well at the fourth, albeit smaller bureau, Innovis. According to an estimate by one expert, Avivah Litan of Gartner Research, only about 2 to 3 percent of consumers now have freezes on their credit files, and only around 5 percent ultimately may be jolted into doing so following the Equifax heist. A study by Credit Sesame, which operates a popular online credit scoring and monitoring service, found that as of Sept. 25, less than half of a percent of 4.5 million TransUnion credit profiles had a freeze on their reports, according to a report by Bloomberg.

Why is this troubling from a mortgage fraud perspective? And what’s the relevance for me as a homeowner or buyer? With the extraordinarily detailed and sensitive information that hackers and their customers may now possess on millions of Americans — Social Security numbers, drivers licenses, credit card numbers, home addresses and more — they may be able to create fake identities that are credible enough to fool banks and other lenders into granting home equity lines of credit and other mortgages in their names, making off with thousands of dollars in the process.

Consider the arrests last fall in New Jersey of a team of alleged identity thieves following an investigation by federal agencies. The scammers allegedly used stolen and fictitious personal identities they created to convince lenders to approve three home equity lines of credit (HELOCs) and four mortgages. The total reported take: nearly $1 million. Though most major lenders have software packages that are designed to spot signs of identity fraud, cases like this keep popping up and could become more frequent with the availability of so much detailed information from Equifax files floating around on dark websites — whether now or in the months and years ahead.

What does this all mean for you? At the very least, be aware that any form of mortgage fraud — including falsehoods about intended occupancy — may constitute bank fraud, which is a federal crime. And get defensive if you haven’t already: Freeze your credit reports at all the credit bureaus. Identity thieves should find it much more difficult to take out a new loan in your name if your credit files are locked down.

Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.