Monday, July 28, 2008

Another Problem - Equity Theft

The New York Times has an article regarding the increasing amount of equity theft that has been occurring. While it seems equity theft was at its height during the Great Housing Bubble with easy access to equity and requiring very little proof and paperwork.

The theft became so lucrative that it has not been abandoned - it just adapted to fit the current rules. First lets take a look at the crime -

A home equity line of credit is an ideal vehicle for criminals, according to Steve Bartlett, chief executive of the Financial Services Roundtable, a consortium of banking-related companies that offers financial support to the Identity Theft Assistance Center.

Mr. Bartlett said such credit lines are typically “big pools of money,” and if consumers do not regularly check their accounts, that pool can drain quickly.

The Federal Bureau of Investigation’s annual mortgage fraud report, which was released in April, cited home equity credit fraud as an “emerging scheme” in the slumping real estate and mortgage market.

Those with poor credit have been preyed upon by identity thieves in recent years, because thieves who pretend to be such owners could easily obtain mortgages from subprime lenders with little documentation.

Home equity lines are a favorite option because they are almost as easy to open as a credit card account, as long as a criminal has the proper financial information.

Then lets take a look at New Jersey's rates -

The F.B.I. does not break out various types of mortgage fraud by state, but in general, mortgage fraud is a bigger problem in New York, New Jersey and Connecticut than in many other states. New York is among the 10 states with the highest rate of mortgage fraud, while New Jersey and Connecticut rank in the top 20.

Some methods recommended are tracking of your credit reports - either by yourself or with one of the firms that specialize in these services - like Identity Theft Assistance Center.

Perhaps this is one area that people should not have such easy access to anyways. Short term needs can usually be taken care of through a credit card - does equity need to be drained with such immediacy?

The ease of HELOCing a house was too easy during the bubble - no docs needed for 100% or more of equity withdrawal. This was just looking for trouble. Since most HELOCs are in the tens of thousands to hundreds of thousands why not make the borrower jump through a few hoops first - actual appraisals not computer generated and requiring financial documentation that the loans can actually be paid back. These loans should be based on more than just a FICO score.

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