A Tidal Wave Of Fraud Approaches

Credit washing involves future homebuyers unwittingly being tricked into committing fraud

Katie Jensen
ATidal Wave Of Fraud Approaches

Auto lenders reported a 400% increase in identity theft claims over the past several years, according to Point Predictive. Since 2018, approximately 96% to 98% of those claims are determined to be unsubstantiated, or in other words, credit-washing. Analysts believe the same trend will occur in mortgage lending.

Similar to synthetic fraud where consumers or companies dispute individual charges, credit-washing happens when consumers or companies dispute the actual account itself. For example, a consumer might say they never applied for a Capital One credit card. Credit bureaus would then have to remove that account from the credit report, then the lender investigates the claim and has the opportunity to put the account back on if needed.

Credit washing fraud is a common tactic for auto loan fraudsters, but now it’s increasing in mortgage lending. Fraud investigators began to notice the shift from auto loans to mortgage loans as more credit repair companies aimed their advertising towards homebuyers.

Credit Washing graph

This particular type of fraud began to take off in 2018 after the Federal Trade Commission (FTC) made it easier for people to file claims of identity theft. Instead of filing a police report and calling up banks to dispute each fraudulent charge one-by-one, consumers could go online and fill out an affidavit to dispute everything at once. This ended up creating a loophole for the credit repair industry.

“In today’s competitive housing market, it’s getting harder and harder for people to get a mortgage, and people have to get creative,” Frank McKenna, chief strategist at Point Predictive, said. “Whenever that happens, fraud increases in general, credit-washing, though, would be seen as an effective method for making it on the system. So lenders should definitely be watching out for this.”

Terry Clemans, National Consumer Reporting Association

More Info The Better

Yet, McKenna says he’s not sure if mortgage lenders are aware of this issue. Unless the lender has history with the borrower, it would have no way of knowing their credit score is illegitimate once it’s been successfully added to the system.

The more information the lender has about the borrower, the better it’ll be able to determine whether identity theft claims are truthful or not. But since so many homeowners refinanced in the past two years, possibly with a new lender, borrower information would be harder to track. Borrowers with fake credit scores might try to do a cash-out refinance, but this fraud mainly occurs among borrowers looking to purchase a home.

The investigators in charge of validating these claims for identity theft found that 98% were not legitimate, according to data collected by Point Predictive.

“Basically, the consumer or the credit repair company on behalf of the consumer was disputing claims that were illegitimate,” said McKenna. “This created a big opportunity for credit repair companies to make a lot of money for borrowers who can’t get into homes or buy cars. So, they started to advertise that they could help consumers get homes and cars and fix their credit in about 30 days. And they made a ton of money doing so.”

Non-credit savvy consumers end up falling for these advertisements because they are desperate to improve their credit score in order to get a loan on a car or home. Recently, the FTC filed a lawsuit against a Houston-based company Turbo Solutions, formerly known as Alex Miller

credit drying

Financial Services Inc., which has done business as Alex Miller Credit Repair. The owner, officer, director, and manager of Turbo Solutions, Alex Miller, who would go directly on the FTC website and fill out forms on behalf of the consumer.

The lawsuit states that, “Defendants falsely claim that, for a fee ranging from several hundred dollars to more than $1,500, they can improve consumers’ credit scores. Defendants attempt to improve the credit scores of their customers by filing false identity theft reports on the FTC’s identitytheft.gov website and by other means, all of which are either ineffective or unlawful.”

Although Alex Miller’s company website seems to be taken down, his Instagram account is still advertising to consumers. Most of the posts show Miller standing in front of expensive cars, sporting gold watches, with a caption claiming that consumers could afford the same lavish lifestyle by allowing him to improve their credit score.

Even with a lawsuit pending, Miller continues to advertise on social media. “They taking [sic] my baby away,” he stated, referring to the FTC, and “I ain’t did nothing but try to help people.”

It does not take a sophisticated scammer to commit credit-washing fraud. According to McKenna, borrowers or credit repair companies don’t have to do much to dispute a claim; all of the onus is on the lenders to prove whether it’s legitimate or not.

“Miller, for instance, would advertise ‘Your score will increase according to the positive accounts you have after I delete all the negatives.’ So, he’s removing all the negative stuff while adding authorized tradelines to the consumers ’bureau,” McKenna explained. “So for a fee of $250 they’ll boost your credit with other tradelines.”

Credit tradelines are accounts that appear on your credit reports, such as credit cards, auto loans, and a mortgage. These tradelines provide much of the data used to create a consumer’s credit score. A tradeline is an entry on a credit report, so every time a consumer opens an account with a creditor that reports to the credit bureau, the credit bureau opens a tradeline on the consumer’s credit report.

Alex Miller, alleged fraudster

3 Round Burst Is Like 3 Card Monte

Alex Miller specifically came up with the “3 round burst,” which was touted as “a unique protocol that helped repair even the worst credit score,” according to an article by the Deccan Chronicle, an Indian English-language daily newspaper.

Yet, Point Predictive’s McKenna says all Miller would do is “Go on the FTC website to dispute everything and when the lenders rejected the claim, he’d go back on the FTC site to dispute everything again, lenders reject the claim, then do the same thing a third time. He called this a 3 round burst, designed to tire the lender out until they eventually throw up their hands and say, ‘Fine, we’re going to remove it.’”

It’s debatable whether any credit repair company should be considered legitimate, according to National Consumer Reporting Association (NCRA) Executive Director Terry Clemans. “According to the FTC, the CFPB, and the Attorney General of the United States, there really isn’t a legitimate credit repair company,” he said.

“Before anyone considers utilizing any type of credit repair firm they need to take a look at the FTC website, the Attorney General website, or CFPB website, and see what they say about credit repair firms, because you’ll find pretty much everyone one of the warns you that most of these companies are described with some unfavorable adjectives,” Clemans continued.

Point Predictive is beginning to see more credit repair advertising on social media aimed at getting consumers into homes. “It was mostly in auto,’ McKenna said, “but we’re seeing it trickle more into mortgages as well.”

credit erasing

The consumers involved in these scams are not criminals for the most part, according to McKenna. Rather, they’re being led down a slippery slope. McKenna believes most of these consumers are not credit savvy and don’t know they’re engaging in fraud.

A litany of poor customer reviews for Alex Miller’s Credit Repair company appear online. One particular review by Pharoah on birdseye said, “This company and Alex Miller is total fraud [sic] they scammed me out of 10K. I paid for the trade line they offered on IG and never got the trade line or my money back since 1/20.”

The irony behind it all is that credit repair companies do not offer any legitimate service that consumers can do themselves for free or for a much lower cost.

“Unless a credit repair company bends or breaks the law to an extreme there is nothing that they can do for a consumer that a consumer cannot do themselves for free,” Clemans said. “Or, if they’re in the mortgage process, a mortgage credit reporting company will do it for them for a fraction of the fee within 48 to 72 hours, which is called re-scoring. There needs to be some kind of error, or pay down, or pay off from the consumer for the consumer reporting agency to change it. If there is a legitimate error, it will always be corrected for free.”

A credit re-scoring or consumer initiated change typically costs between $40 to $50 per tradeline, Clemans said, whereas a credit repair company would not even speak with a customer for that kind of money.

Clemans also explains the reason so many credit repair companies exist and continue operating is because there are too many of them to track and there are sometimes not enough complaints from customers, which is needed for the FTC to act. The litigation process to go after one of these companies can take years in some cases. Sometimes these companies change names so quickly, they don’t give enforcement entities enough time to build a case.

“As one FTC enforcement officer put it, it’s like playing whack-a-mole at the county fair,” Clemans said. “You take down one and several more pop up. They just keep coming back with different names, as different corporate entities, and supposedly with different business practices.”

Frank McKenna, chief strategist, Point Predictive

Credit Washing Hurts Legit Victims

The proliferation of credit-washing fraud across industries hurts actual victims of identity theft. Since 98% of these claims are actually invalid, legitimate claims get grouped in with the fake ones which ultimately makes it harder for companies to help the real victims.

Typically, lenders and fraud investigators are able to flag identity theft when the information they provided does not match the consumer’s information on the loan application. A different phone number, home address, or other changed personal information are signs of identity theft. However, if a consumer claims identity theft on a credit card from over three years ago, but the lender sees the card was mailed to the correct address, a call was made to confirm the card was received, and all information matches up with the consumer’s information, then that’s an indication that it’s not a real identity theft claim.

However, if a credit washer was able to get the negative accounts removed without the lender or investigators flagging the claim as illegitimate, they get added to the system with good credit scores that inaccurately represent what kind of borrower they are. Currently, there is no way to check these credit scores once they’ve been added to the system.

In McKenna’s experience, the most vulnerable type of consumers to these credit-washing scams are first-time-homebuyers. That segment continues to grow as more Millennials and Gen Zers come into purchasing age, but increasing rates, low inventory, and high home prices are cranking up the desperation. A higher credit score means borrowers can get a lower rate on their mortgage.

It’s also apparent through Alex Miller’s advertisements that he is attempting to sell a lifestyle credit-poor borrowers dream of. “When Alex Miller stands in front of super luxury cars or nice homes with his Versace gold watches, he’s advocating a lifestyle — a very attractive lifestyle to some,” McKenna said.

In most cases it’s the consumers that are the true victims in credit-washing fraud, according to McKenna. The people most likely to fall for this type of scam are simply desperate to buy a home or a car, which are not luxury items but necessities in many people’s lives. Most of the time the consumer believes that these fraudulent credit repair companies are legitimate, McKenna said.

“It’d be a stretch to call lenders a victim in this situation,” McKenna said. “But they do suffer a loss whenever borrowers lie on their loan applications. Lenders don’t necessarily lose money through this type of fraud, rather they just don’t get paid as well as they should.”

“If a borrower has a credit score of 750 after credit-washing, there would be a 1% chance the person would stop paying. But if the actual credit score was more like 500, the rate of loss for lenders would go up to 10% or 15%,” McKenna continued. “So, lenders are not able to price the loan right or collect the right amount of money if the credit score is inaccurate.”

The rate of loss per credit-washing for auto loans ranges between $15,000 to $80,000, according to McKenna. For a home that gets foreclosed on that loss can be $250,000 or more based on the home’s sale price.

“Any mortgage lender that hasn’t looked into this should, because this is a hidden, creeping problem that they probably haven’t seen,” McKenna said.

Editor's note: This story has been updated. Due to a reporting error, the original version said mortgage lenders reported a 400% increase in identity theft claims over the past several years, according to Point Predictive. It was auto lenders but experts believe the same trend will occur in mortgage lending.

Credit Washing
Katie Jensen
This article was originally published in the NMP Magazine June 2022 issue.
Published on
Jun 16, 2022
More from NMP Magazine
NMP MAGAZINE
iBuying Is Not Circling The Drain

Surge in home prices is making the segment more profitable — even for departing Zillow

Steve Goode
NMP MAGAZINE
Eeny, Meeny, Miny, Moe, Which Cash-Out Option Is Best Way To Go?

How to sort through the myriad of cash-out products for clients in a rising rate environment

Ralph Mclaughlin
NMP MAGAZINE
Eyes Are Windows To The Soul

Eye contact is important in both verbal and non-verbal communication

Harvey Mackay

Webinars

Your Commercial Mortgage Crash Course: Tactics You Can Use to Diversify and Grow Today

According to a recent MBA report, commercial and multifamily originations grew by 72% in Q1 of 2022. Successfu...

Webinar
Jun 09, 2022
Investor Confidence in Today’s Non-QM And Why Originators Are Paying Attention... A Virtual Town Hall

We host Angel Oak Mortgage Solutions for a special 2021 edition of their virtual town hall series they ran fro...

Webinar
Apr 08, 2021
How to Help Real Estate Pros in a Post-Refi World

Hear from Melissa Merriman, REALTOR® with The Melissa Merriman Team at Keller Williams, on what real estate pr...

Webinar
Mar 18, 2021
Highlights
Redfin: House Affordability Crisis 'Goes To 11'

Homebuying demand pulls back further as mortgage rates near 13-year high.

Analysis and Data
Black Knight: Past-Due Mortgages Fall To 3rd-Straight Record Low In May

Company’s “first look” finds serious delinquencies, foreclosure starts showing continued improvement.

Analysis and Data
Lender To Pay Over $1M To Resolve Mortgage Fraud Allegations

Former loan processor will receive $228K for whistleblower role.

Industry News
Connect with your local mortgage community.

Meet your your colleagues, both national and local, by attending an event in your area.