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Freddie Mac Warns Buyers Of 3 Credit Scams
For many consumers, the prospect of buying a home can be daunting. There are various factors that go into a lender’s decision whether to extend credit or not, and a buyer, especially one with some credit issues, has to make sure that their loan application is as red-flag-free as possible.
That places many potential borrowers at risk for scammers who offer quick fixes to the buyer’s credit. And, there are 3 ways they do it.
In an effort to protect as many potential homeowners as possible, Freddie Mac is issuing a warning to buyers and lenders about scams that offer the promise of a raised credit score in exchange for money.
“Who doesn't want the highest credit score possible to garner the most-favored terms?,” Freddie Mac writes on its website.
“For many Americans with consumer credit negatively impacted by the housing crisis and fluctuating economy, it's easy to be lured by the promise of a raised credit score,” Freddie Mac continues. “Schemes that falsely raise credit scores will land borrowers in scalding hot water - as well as cost you time and money combating both origination- and servicing-related fraud.”
Freddie Mac said that consumers, as well as those in the mortgage industry, need to be on the lookout for any person of credit repair service that offers “help” with one of three types of common fraud schemes that promise an increased credit score, including:
1. Disputing credit with credit bureaus.
A new program with FICO – called FICO Score Open Access for Credit & Financial Counseling – was created to help borrowers who have credit management problems by providing FICO Scores along with credit education material to help consumers understand credit scoring and learn more about financial management. However, some fraudsters are using the program in a scam. “(Scammers) may direct a borrower to contact credit repositories repeatedly to dispute previously defaulted debt,” Freddie Mac warns at its site. “The fraudster hopes the creditor will miss responding to one of the disputes and the defaulted debt will disappear temporarily, triggering a jump in the borrower's credit score. The borrower may qualify for -- and close on -- a new mortgage before the credit report correctly reflects the defaulted debt and the borrower's true credit score.”
2. Claiming identity theft falsely.
Some companies are encouraging buyers to falsely claim identity theft on their loan application in order to have debt removed from their credit report. “Some borrowers who falsely claimed identify theft have gone as far as providing affidavits of identity theft and police reports,” Freddie Mac writes. “Of course, lenders take these claims seriously and investigate. In some instances, they discover that the ‘police report’ is fake, never actually filed, or from a police department that doesn’t exist.”
3. Misusing credit protection numbers.
Using a credit privacy number -- an alternative for a Social Security number that is most commonly used by celebrities and politicians to hide previous credit issues – can be a dangerous move. “Some consumers with poor credit acquire a CPN with the intent of creating a new, clean – and misleading - credit profile,” Freddie Mac notes. “CPNs were not created for this purpose, and mortgage loans originated using a CPN are ineligible for sale to Freddie Mac. Borrowers who use a CPN with the hope of leaving their bad credit histories in the rear view mirror are in for a rude awakening. As the Federal Trade Commission bluntly points out, ‘By using a stolen number as your own, the con artists will have involved you in identity theft,’ for which you may face legal trouble.”
Freddie Mac writes that by raising awareness of these types of scams, lenders can help borrowers avoid falling prey to scammers.
Freddie Mac said that lenders should remind borrowers that:
Credit scores aren't used unfairly to block them from accessing credit; their purpose is ensuring successful repayment of borrowed money. Ploys to circumvent official credit controls will likely set up consumers to fail.
The best way of raising and maintaining a healthy credit score is by consistently paying bills on time. A quick jump in credit score is never worth the stain on their records.
Source: “Freddie Mac Issues Credit-Scam Warning to Potential Home Owners,” HousingWire (Nov. 6, 2015)
With more than a decade of experience, LaDawn enjoys educating first time home buyers, working with the 55+ community, relocation clients, sellers who want to downsize, step up purchase or anything in....
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