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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2005

How Technology Aids and Prevents Identity Theft

A study commissioned by the Federal Trade Commission (FTC) reports that in 2003, more than 9.9 million Americans learned they had been victims of identity theft, at a total cost of nearly $50 billion to the economy—an average of almost $5,000 per victim. Further, the study reveals that if someone opens a new account today by fraudulently using another individual’s credit history, the victim can expect the identity thief to charge more than $10,000 before the crime is discovered. Moreover, the identity theft victim can expect to spend an average of 60 hours and more than a $1,000 trying to reclaim his/her identity.

The FTC study also indicates that the longer the identity theft fraud goes undetected, the greater the financial and time losses. When identity theft was detected in one month or less, new accounts were fraudulently opened in 10 percent of the cases, as compared to 45 percent of the time when fraud was undetected for more than six months. In addition, 24 percent of victims spent 10 or more hours resolving the issue when they detected the crime in one month or less. However, the percentage of victims spending 10 or more hours rectifying the situation increased to 80 percent when the fraud was not detected for more than six months.

With such staggering financial and time-loss potential, it’s understandable that consumer awareness about this growing fraud issue has increased. Within the past few years, many government agencies have issued reports about identity theft, and the media have had no shortage of stories on the topic. However, despite the fact that consumers are more attuned to the risk of identity theft, many are still unaware of how to protect themselves from it. Much of the confusion is associated with the many different ways an individual’s identity can be stolen. While stealing purses, wallets and mail, falsifying change of address forms and rummaging through garbage are all still popular methods used by identity thieves, technology has definitely played a role in propelling this crime to the next level.

The ubiquitous nature of the Internet affords fraudsters the vast opportunity to concoct a wide variety of schemes. One technological tactic involved in identity theft is the use of spyware, software or hardware installed on a computer that enables the controller of the spyware to monitor and retrieve information from that system. Often, the software form of spyware is installed remotely without the knowledge of the computer user when he/she unknowingly clicks on a link embedded in an e-mail or on the Internet that contains the hidden spyware. Any information keyed into a computer infected with spyware, such as account numbers and personal identification data, can be gathered by the spyware for misuse.

Phishing, another popular identification theft scam made possible with today’s technology, involves fraudulent Web sites designed to look identical to legitimate Web sites. Victims of phishing scams usually receive e-mails with links to these fraudulent Web sites—typically e-commerce or financial Web sites in which people are most likely to enter personal and financial information. Once information is entered into a fraudulent Web site, the host is free to use it however he/she desires.

Identity theft victims can easily be unaware of the crime for some time if they do not regularly check their credit reports. Often, they only become aware of the damage when problems arise with their application for a new loan or credit line. Mortgage brokers and lenders frequently see firsthand how the initial news of identity theft affects unsuspecting victims.

Brokers and lenders are in a unique position because they come into contact with consumers when they are seeking to understand their current credit condition and the many factors that affect their credit status. Whether a consumer has been a victim of identity theft or not, information about how to prevent the crime is likely to be welcomed, especially during a time of increased credit awareness. The period when customers are exploring their home-buying options is an opportune time for brokers and lenders to provide them with information about the tools available to help protect them against identity theft.

Although technology plays a key role in exacerbating the identity theft problem, it has evolved to be essential in the prevention of it as well. Online credit monitoring technology has been designed to help protect consumers against the problem of identity theft and erroneous credit reporting. This technology helps consumers identify unauthorized increases in their current debt, new applications for credit they did not initiate and other suspicious activity on their credit reports. In addition to increasing their level of awareness, these solutions offer consumers assistance that can help them resolve credit issues associated with possible identity theft.

To provide a snapshot of consumers’ credit histories, online credit-monitoring services can provide consumers with a detailed credit report from one of the nation’s three credit bureaus. Some credit monitoring services offer three-in-one credit reports, which combine the data of all three credit bureaus into one easy-to-read format. Consumers can use this information to better understand what credit-related information has been reported and documented up to that point in time.

While many credit monitoring services provide some form of credit rating along with their credit reports, some products may also provide a FICO score with their reports. When borrowers are being considered for a mortgage, brokers and lenders analyze both the credit report and the FICO score to determine the consumer’s qualification, so this information is valuable to consumers as well.

For ongoing tracking of credit information, consumers subscribing to a credit monitoring service can receive weekly e-mail updates alerting them to any new credit-related activity that occurs. With this type of proactive reporting in place, consumers can take immediate action when suspicious activity is identified. One credit-monitoring service enables any fraudulent or erroneous activity discovered to be quickly disputed by notifying two of the three credit bureaus online, and it even offers identity theft insurance that protects consumers against losses of as much as $25,000.

It’s clear that everyone in the mortgage chain—including the borrowers themselves—must take responsibility for aggressively fighting identity theft through awareness, technology-based monitoring tools and education. As homebuyers come into contact with mortgage brokers, originators and lenders, they can receive the valuable information they need to help protect their identities and valuable credit history from fraudsters. Mortgage professionals who offer the guidance and information resources their customers need perform a tremendous service to them and the industry at large.


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