Buying a High Credit Score No More
In the market for a mortgage loan with a low interest rate? Instead of qualifying for a discount rate by earning a good credit score, you can simply buy your way to a great credit score–the kind of score that convinces lenders to loan you money at lower interest rates. You simply piggyback on someone else’s excellent credit history. Here’s how it’s done:
- A credit enhancement company pays people who have excellent credit histories to allow others to be listed, temporarily and in name only, on their credit cards.
- The credit enhancement company then allows people with lousy credit scores to buy positions on the credit cards of people with good credit histories.
- The low credit scores get a boost, often allowing high-risk borrowers to qualify for loans with much lower interest rates.
What’s so bad about that? After all, people who sell their good credit profit from the good credit histories they have earned, borrowers with bruised credit have lower monthly payments (and they are the people who really need it), the credit enhancement company provides a valuable service and earns a good profit, and the lender gets another happy customer. Everybody wins, right?
Wrong!
Why? Because these piggybacking schemes are another type of mortgage fraud. Essentially, the borrower is lying to the lender–claiming to have a better credit history than they really have. This practice fools the lender into making a decision to approve a loan based on false information. I don’t know about you, but if someone who was asking to borrow money from me misled me about his or her ability to pay it back, I would get more than a little upset. Just because a bank or other institution rather than an individual is lending the money doesn’t make it any less wrong to lie.
As citizens, one of our responsibilities is to protect the American Dream, and one of those dreams is the American Dream of Homeownership. If we begin to turn the other way when people are committing obvious fraud, we place the entire system at risk. Homes will begin to cost more money, loans will be less accessible, and someday our children and grandchildren will no longer be able to afford their own homes.
Credit enhancement companies who engage in this sort of activity claim that they are not breaking any laws. But no matter what they say, using trickery and schemes to beat the system will eventually catch up with all of us, and we will get stuck with the bill–somebody always does. Borrowers need to earn credit scores that honestly reflect their ability to pay back a loan.
Fortunately, Fair Isaac Corp. (the company that computes the most commonly used credit scores) has recently decided to fight back, announcing that its next version of the FICO score “will no longer consider certain types of credit card accounts, closing a loophole that allowed strangers to coattail on a cardholder’s good credit.” See “Fair Isaac combats credit manipulation,” for more details. In essence, the adjustment removes authorized user accounts from consideration by the scoring model in FICO 08, the newest version of the Classic FICO credit score which Fair Isaac expects to become available to lenders starting in September 2007.
Piggybacking on someone else’s good credit may not qualify as a crime, but anyone looking at it can see that it is just plain wrong.
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Actually it is a crime. Any false statement made to a lender or false document presented or prepared is Mortgage Fraud, Federal 18 U.S.C. 1014. The result with these credit scams is the demand for real estate was manipulated as a buyer was created. That lie presents the illusion of increasing demand leading to rising property values and deceives lenders and appraisers about value trends in the neighborhoods where the Mortgage Fraud takes place. Once a nuisance to a handful of lenders, these economic terrorists have put innocent homeowners on the hook for overpriced houses and pushed up interest rates for all home loans. Brian Cohane, co-head of residential and asset-backed bond trading at investment bank UBS, that trades billions of dollars of mortgage securities daily, said ?¢‚Ǩ?ìThis (secondary) market is key for investors. The integrity of that market is very, very important to those investors.?¢‚Ǩ¬ù As a result, lenders and the authorities have turned their attention to regular borrowers who are often prompted into falsifying their applications by real estate agents or loan officers who tell them it’s OK because “everybody does it.” But fraud is fraud. It doesn’t matter who is committing it or why, severe penalties can and increasingly do apply. Making false or misleading statements on a mortgage application or providing false documents is a federal crime among other crimes and a form of personal and financial suicide. You will do hard time as it involves several federal felonies like mail fraud, license violations, state felonies, and the IRS on you for money laundering. Did you know sending a mortgage payment through the US Mail or bank wire for loans with misrepresentation(s) is Mail and Wire Fraud, more Federal felonies? Back on the outside, your credit history will contain a financially devastating black mark for years after you are set free. You will never be able to borrow money from regulated lenders again as you?¢‚Ǩ‚Ñ¢re on their Exclusionary List which Freddie Mac requires all lenders check theirs and instead be relegated to the knee-cap busting interest rates of loan-sharks. Nor will you be able to ever hold a real estate related or financing license again or work in any real estate or financing related business. It’s not a pretty picture. As soon as a lender discovers a fake statement, it is required to file a SAR (Suspicious Activity Report) with the FBI, it can call the loan balance due, seize the property and seek charges that could rain you with fines, punitive damages and jail. There doesn?¢‚Ǩ‚Ñ¢t even have to be a loss! The IRS issued a letter that it treats any income or profit off it as Money Laundering. So for example one lied anywhere on their loan application then flipped the property, which the IRS is auditing these flips, the IRS said in Dec 2003, no no, that?¢‚Ǩ‚Ñ¢s money laundering and you lose everything. Mortgage Fraud spawned a dangerous housing bubble burst that has ruined households and neighborhoods as overvalued property falsely inflates nearby home values while also raising property taxes. When the scam is uncovered or homeowners default or both, values just as quickly plummet leaving other owners with over-valued homes and upside down mortgages — conditions that worsen the housing bust. Investigators for the FBI, state Mortgage Lending Division and local law enforcement say discoveries of mortgage fraud will continue to increase as foreclosures, sting operations and the fraudsters being turned in increasingly give evidence that borrowers lied on their loan applications. Some of the $450 billion in home equity that homeowners cashed out during the 2001-’04 mortgage refinancing boom was based on exaggerated home values that came from mortgage fraud. Who pays for that part that goes into foreclosure? Initially it?¢‚Ǩ‚Ñ¢s the lender, who then spreads it back in higher interest rates. Housing is a more important part of our economy than it’s ever been, and people’s and our country?¢‚Ǩ‚Ñ¢s fortunes are tied to mortgaged properties. Eventually, as this costly cancer increasingly spreads, there will be a bail-out like the S & L Crisis, but of a higher amount, much higher, which is why the IRS has categorized perpetuators of Mortgage Fraud as Economic Terrorists.
Comment by Morgan Alexandra — June 6, 2007 @ 9:13 pm
tell me more about the cost of piggyback on other good credit
Comment by Everett king — June 26, 2007 @ 5:39 pm
Lol the above “know it all” statement by the moron that states how wrong it is to deprive of the American Dream via gray area creative finance is by far most funny! Look Mr.Do gooder whack job: Fact is that the whole so called piggy backing of credit is a mere ruse so as to lead from true fact of hackers that can easily raise a persons FICO to 800-850 within 1 hour. lol Hey Mr.world police how can you discern a fake 800-850 FICO from a legitimate one when the changes came from within the credit bureau computers themselves? Lmao any hacker with decent skill can become an Admin/user at Equifax,Experian,Trans Union etc. Get a life and stop being a hypocrite in that its he who bellows the loudest that is more guilty than those he bellows about.
Comment by Tod meuir — February 2, 2008 @ 3:04 am