Misappropriation of Credit Scores

When a borrower comes to you with a credit score that makes you cringe, the typical response is to set them up in a subprime loan. In cases where the score is particularly low, you may have to apologize, offer them credit guidance, and tell them to come back in six months or longer. But originators, real estate agents, and other industry professionals have recently been courted by companies that tout the ability to raise a borrower's credit score, making them stellar candidates for any loan type. The problem? Credit "enhancing" or "cleansing" schemes like these can not only be dangerous for your borrowers, most are unabashed fraud.

The problem begins when a low-scoring borrower is added to the credit card of a person with excellent credit. Until the emergence of companies that specialize in this area, it was often the originators themselves or another (unknowing) customer with very good credit whose card was being "shared." The borrower has no access to the credit card, but enjoys the benefits of a strong credit history simply by being named on the account.

One of the prime offenders of credit enhancing services claims, "These lines of credit are guaranteed to give you a significant increase on your credit score. These lines have seasoned, perfect histories. Think about having a perfect credit history, without the long wait, and hard work." For substantial fees, this company will add the borrower's name to a stranger's credit accounts; borrowers who have not earned a high score can virtually "walk into" a perfect history. After the credit score has been improved, the company removes their name from the account, having served the purpose of landing a better loan.

This poses several problems, not the least of which is that the borrower, a person who likely has a history of late or unpaid bills, is a poor candidate for a home loan. And that's putting it kindly. Their chances of defaulting and foreclosure are very high, but have not been accounted for in the loan. They may not be required to pay a mortgage insurance premium, putting the lender in a vulnerable situation. In mom-and-pop banker firms, a couple of these fraudulent loans could be devastating.

Whose credit histories are being abused? One credit enhancing company's ad (found largely on classified ad Web sites) reads, "Would you like to make an extra income using your credit cards in good standing? You could be making thousands each month with virtually no work at all! My company has a very unique and lucrative business that involves your good credit card accounts and helping other people. That's right, it helps other people with a second chance at life. WE ARE NOT LOOKING FOR INVESTORS!! We only need people that want to make a nice income and don't want to do the work.." If prospective credit sharers aren't turned off by these too-good-to-be-true lines, they ought to be suspicious of the ad's spam-like closer, "Please only call me if you are seriously interested in my program. My time is extremely too valuable to waste on tire kickers alone. You can legitimately make an income here so again be serious." Qualifications for these perfect-credit pawns include a credit card with a minimum $2,500 limit that is at least two years old, no late payments on the card's history, willingness to keep a low balance on the cards at all times (30 percent or less), and an agreement to never be late on the payment.

As I learned about credit enhancing schemes like the one above, I decided to call my own credit card company to find out how others could be added to my account. I was shocked to learn that up to 99 people can be added, and all I need are their names and addresses. That's it—no application, no forms to fill out.

In speaking with the FBI about this issue, they made reference to two key laws: False statement 1001 USC 18 and Bank Fraud 1344, both of which could carry a 10-year statute of limitations. Of course, the key to stopping fraud of any kind is education. Originators, consumers, and others in the industry need to know what fraud is, how to detect it, and how to report it. When employers, borrowers, and lenders allow fraud to go unreported, they miss an opportunity to protect future mortgage transactions and every person associated with the loan.

Solving this problem involves several vital players. One of the most important "gatekeepers" to fraud-free loans is you, the originator. If a borrower comes to you with this scheme in mind, educate them about the legality, and let other mortgage professionals in your area know about this problem so they don't fund a loan that should never have been approved. On the underwriter's end, they simply need to look for the credit report codes that indicate whether the borrower is on a joint or authorized user account, and do their due diligence to determine the legitimacy of the borrower's credit history. By working together, we can help ensure that more loans are safe, legitimate, and make a positive impact on the industry.

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