Have you checked your home equity line of credit lately?
If not, you probably should. Even if you've never used a home equity line of credit, or HELOC, it's a good idea to check your three credit reports (Equifax, Experian and TransUnion) to make sure identity thieves haven't opened one in your name.
According to the FBI, canny con artists are increasingly draining the equity of unsuspecting homeowners by tapping into their home equity lines of credit. The more equity you have in your home, and the less vigilant you are about monitoring your finances, the greater the risk that thieves could drain the equity from your home -- or worse, sell it out from under you.
In its annual mortgage fraud report, the FBI identified HELOC fraud as an "emerging scheme" that adds further insult to an already injured real estate and mortgage market.
The report calls the current housing bust, the "ideal climate" for HELOC fraud and other fast-buck mortgage schemes associated with builder bailouts, seller-assisted financing, short sales and foreclosure rescue.
Identity thieves have traditionally targeted those with poor credit. In the past, by posing as homeowners, they could easily obtain subprime loans with little documentation.
But now that the door to subprime lending has slammed shut, thieves have set their sights on those with good credit and substantial equity in their homes -- deep pools of cash that can be easily tapped via a HELOC.
Sharks in deep pools
The FBI says HELOC thieves typically use stolen identification to apply online for a line of credit in your name. Then they instruct the bank to wire the funds to their accounts, providing their own contact information in place of yours. That way, the bank unwittingly contacts the thief to verify the electronic funds transfer.
Although the FBI does not track the dollar amount lost each year to mortgage fraud, incidents reported by financial institutions jumped a whopping 31 percent (from 35,617 to 46,717) in fiscal 2007, over the previous year. The sudden spike in HELOC fraud prompted the Mortgage Asset Research Institute, a Virginia-based organization that tracks mortgage fraud, to add identity theft as a category to track.
Jay Foley, executive director of the San Diego-based Identity Theft Resource Center, echoes the FBI's findings that some HELOC fraud, especially schemes aimed at selling the home without the homeowner's knowledge or consent, originates from within the mortgage industry itself.
"It depends on the depth of the scam," he says. "In the recent mortgage bust by the FBI, these are all people who actually work in the industry; this is what I could classify as an inside job. An outsider would have to find a less-than-scrupulous Realtor, a less-than-scrupulous mortgage broker, and probably have to come up with somebody to do the inspections and all the other things."
Anne Wallace, president of Identity Theft Assistance Center in Washington, D.C., which is funded by financial institutions to combat identity theft, says complacent homeowners often overlook one important point.
"Criminals read the newspaper, too," she says. "They take advantage of opportunities where there are big amounts of money. The risk is that consumers will get the loan and then sort of forget about it. When people think of fraud, they typically think about their checking accounts and credit cards, not their home equity lines of credit. If you haven't been using the account, you might not be looking at those statements."