In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Monday, June 04, 2007

The New Piggybacking: Lipstick on a FICO

by Tanta on 6/04/2007 09:38:00 AM

Yes, well, read the whole thing if you want the important information. I'm here to lose myself in those minor details that provide verisimilitude:

Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale.

Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.

"Two forgotten cell phone bills and identity theft." Let us imagine the person ahead of us in line at the CVS busted for trying to pass a forged prescription for Oxycontin: "Well, I had a couple of hang nails a few months ago, plus I was beaten savagely by a gang of street thugs." It makes perfect sense that this person couldn't get a real doctor to help.

Now, you know I do have real sympathy for victims of identity theft. The very first thing I expect them to do is depend on the kindness of strangers.
The pitch to those who are essentially renting their credit history for pay is seductive: You don't need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It's essentially free money, they are told.

Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories. Kinney, whose FICO score is above 800 on the scale of 300 to 850, quit his job working at a Farmers Insurance agency and uses the ICB income to tide him over until he starts his own insurance agency. . . .

Kinney, the retired Army officer in California, said those borrowing his good credit history don't get his personal information, full credit card number or credit card expiration dates. Any sensitive data is handled through ICB, and Kinney adds the users himself by calling his credit card company. ICB also destroys any duplicate cards that are issued to the credit renter, according to its contract.

Instead of being worried about risks he may be assuming, Kinney said borrowers are the ones vulnerable to scammers posing as do-gooders. Those seeking a credit hike give the cardholder their names and Social Security numbers, which, in the wrong hands, could lead to identity theft. Kinney said he also receives credit card offers in the mail for the credit borrowers on his accounts, opening up another possibility for fraud, but he throws them away.

"I know the whole thing sounds kind of odd and not very legitimate, but it is for now," Kinney said. "I don't know how long before someone will decide it's illegal. But I'm not counting on this for the long-term."

You cannot but admire Mr. Kinney's approach to advertising for his soon-to-be launched insurance agency. Don't ask me what kinds of policies Mr. Kinney intends to write; I limit myself to mortgage fraud.

You cannot also but admire Mr. Estruch, who helpfully provides the name of his mortgage lender to the reporter. I have made many representations and warranties over the years; I have never personally had one falsified in an AP story picked up by the New York Times, nor have I discovered this falsification while sitting in my bathrobe drinking coffee on a rainy Sunday morning at home. What, do you wonder, is American Home Mortgage going to do now? Hope whoever bought that loan doesn't read the papers?

There are people who tell me that I should lighten up on brokers and lenders, you know, because really anyone can get taken advantage of by unscrupulous borrowers. Am I the only one who wondered just how carefully concealed this sort of fraudulent behavior might have been at the time the loan was made, given an environment in which the happy participants, Mr. Estruch and Mr. Kinney, are so cheerfully willing to spill the beans to an AP reporter? Is there a plainer sight in which one might hide? Mortgage lenders, do you have that odd sensation that you are being laughed at behind your back? If so, you really ought to seek psychiatric assistance. No one is waiting until your back is turned.