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Consumer loan fraud invades real estate

August 9, 2004

Increase in home loans using stolen identities disturbing, researcher finds

Inman News

Lenders get good marks for managing "real" credit risk such as a person's ability to repay credit granted or cases of insider loan fraud, but risk managers often overlook the potential for fraud in areas other than card portfolios, new research from TowerGroup has found.

"As the frequency and types of consumer loan fraud continue to evolve, we are seeing the emergence of fraud in secured portfolios such as home loans," said Christine Pratt, senior analyst in the consumer lending and bank cards practice at TowerGroup and author of the research.

A particularly disturbing trend, Pratt said, is the rise in real estate loans initiated by thieves using stolen identities. She said the dollar damages possible for institutions targeted by thieves for mortgage or home equity loans against property they don't own is staggering.

"One takeaway for credit managers from TowerGroup's findings is that organizations marketing those types of products must check and double-check existing procedures and technologies to ensure that they are on alert for this type of activity, so that their customer information does not fall into the wrong hands," Pratt said.

Some highlights of the research include:

• Even though fraud generally falls under the category of "operational risk," some fraud is entwined with credit risk that it is virtually indistinguishable.
• Vigilance in managing credit risk is essential in both servicing and managing portfolios. There is no shortage of risk after the customer's loan has been approved and the information makes its way to the servicing operation. There is a need to manage costs and provide quality processing to retain and cross-sell profitable customers.
• Credit risk in the servicing arena pales in comparison to risk in collections and recovery, where investment in technology lags all other consumer credit processes.

Copyright: Inman News Features