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.”
Now that anti-fraud software has shored up credit card accounts, HELOCs have become the next tempting target for theft. Thieves gain access to your home equity pool either through an existing HELOC or by opening one in your name at the bank of their choice. Ironically, you may have more trouble opening a HELOC than identity thieves, who can manipulate the loan documents to suit their purpose.
Once accessed, a line of credit can be tapped as easily and directly as a debit card account. And don’t expect the thief to stay under the limit on your account.
“The HELOC thief won’t stop at your line of credit; they’ll go into overdraft big time, and each one of those overdrafts is going to bean you for a few dozen dollars and launch your interest rate sky-high,” Foley says.
Seniors most vulnerable
Foley says seniors may be particularly at risk of HELOC fraud for four reasons:
- They often own their home outright (translation: 100-percent equity).
- They may not be as vigilant of their finances.
- They may not be living in their home.
- They may be more trusting and forthcoming with personal information when approached by a friendly official-sounding caller.
“If your place is worth $300,000, I’m sure I could tempt a bank into loaning me $100,000 against it without any problem,” Foley says.
In extreme cases, con artists could even sell your home out from under you. Here’s how: One poses as the buyer, obtains a mortgage to purchase your home from a partner posing as you, the seller. Upon closing, they split the mortgage money and disappear.
Foley recalls one such victim who learned that her home had been sold out from under her when she received a most unwelcome visit from the Welcome Wagon.
Victims of HELOC theft and mortgage-jacking typically are reimbursed by the lender when fraud is proven. However, the process can be lengthy, and often the identity theft doesn’t stop there.
Still, the current crisis in American mortgage lending is making it more difficult for identity thieves to steal your home equity, Foley says.
“With the collapse of no-doc loans, most banks and reputable lenders are doing a lot more due diligence than before,” he says. “You have to put a lot more documents in front of them before they’ll even consider a loan.”
That said, keeping tabs on your credit report remains the best way to detect financial finagling. Contact the credit reporting agencies and have them activate their “extended fraud alert” feature that requires lenders to notify you before extending credit.
While you can arrange for credit monitoring from the three credit bureaus and various vendors, it’s often too little too late, Foley says.
“Between the time that line of credit is opened and you get the notice that it’s open, it is entirely possible that that entire line of credit would be spent,” he says.
Need additional reassurance? Freeze your credit with each of the three credit reporting bureaus. This prevents them from releasing your credit report for anything (credit cards, auto loans, HELOCs, etc.) until you “thaw” your credit, thereby stopping mortgage fraud at its source. It’s a somewhat lengthy process but can be well worth it if you have no plans to obtain credit in the near future.
“If I were a senior living in a care facility, I would freeze my credit in a nanosecond,” Foley says. “Then I don’t have to worry about it. If a bank goes to check my credit reports, they’re going to come up against a credit freeze. That’s going to stop them dead in their tracks, even if I own my home outright.”
Finally, pay a visit to your local county courthouse to make sure tax notices are mailed to you, and not to your tenant.
“If I no longer live in my home, I’m going to make darn sure the county recorder knows where the paperwork has to go,” Foley said. “I’m going to make sure they’re going where I’m living or to whomever my agent is, ideally a family member.”
Jay MacDonald is a contributing editor based in Texas.