With the issue of delayed bank foreclosures at the top of the evening news, I wanted to provide a different perspective on the issue and highlight what I think are some very important, yet often underestimated risks hidden within this issue. For many homeowners, the process of becoming delinquent and eventually going into default is actually a cash-flow positive experience. The process offers these borrowers temporary “free rent,” whereby a major previous monthly commitment is no longer a monthly obligation, freeing up cash for other purposes, including paying other bills. For those consumers who are managing cash flow issues each month, the lack of a mortgage commitment immediately allows them to meet other commitments more easily – making payments on credit cards and car loans that may have previously also become delinquent. From the perspective of a credit card or auto lender, the extended foreclosure process is a short-term positive – it allows a borrower who had previously struggled to remain current to now pay on time and in the short-run, contributes to portfolio health. Although these lenders will experience an improvement in delinquency rates, the reality is that the credit risk is simply dormant. At some point, the consumer’s mortgage will go into foreclosure, and which point the consumer will again be under pressure to continue meeting their obligations. The hidden and significant risk management issue is the misinterpretation of improved delinquency rates. Halting foreclosures means that an accumulating number of consumers are going to enter into this delayed stage of ‘free rent’, without any immediate prospect of having to make a rent or mortgage payment in the near future. In fact, according to Bank of America, “the average foreclosed borrower has not made a payment in 18 months”. This extended period of foreclosure delay will naturally result in a larger number of consumers being able to meet their non-mortgage obligations – but only while their free-rent status exists. A lender who has an interest in the “free rent” consumer is actually sitting on a time-bomb. When foreclosures stop or slow to a rate that is less than consumers entering it, that group will continue to grow in size – until foreclosures start again – at which point thousands of consumers will be processed and will have to start managing rent/housing payments again. Almost immediately, thousands of consumers who have had no problems meeting their obligations will have to start making decisions about which to pay and which not to pay. So, this buildup of rent-free mortgage holders presents a serious risk management issue to non-mortgage lenders that must be addressed. Lenders who have a relationship with a consumer who is delinquent on their mortgage may be easily fooled into thinking that they are not exposed to the same credit risk as mortgage lenders, but I think that these lenders will quickly find that consumers who have lived rent-free for over a year will have a very difficult time managing this transition, and if not diligent, credit card issuers and automotive lenders may find themselves in trouble. _____________________ http://cnews.canoe.ca/CNEWS/World/2010/10/08/15629836.html

By: Margarita Lim Consumer data has increasingly become commoditized over the years. There’s a lot of it and it’s arguably more easily obtainable. Social Security number and date of birth information was once considered confidential information. Today, those data elements in addition to traditional consumer data such as name, address and phone number are more publicly available (either legitimately or illegitimately). The advent and popularity of social network Internet sites have also made considerable information about a person’s life – both professional and personal, available for anyone’s viewing pleasure. So the question is…how much is too much information? If you’re a consumer who is particular about privacy, then you’ll have a lower threshold. On the other hand, if you’re a business trying to minimize fraud losses, then you’re at the other end of the spectrum – you can never have enough information to help prevent fraud – especially when you’re trying to keep up with fraud trends. Data is a key element in fraud prevention. Experian has access to many data assets and has a reputation for providing high quality fraud products in the marketplace. The data we use in our fraud products comes from multiple sources and sets us apart from our competitors because corroborated data is more reliable than data from a single source.  Having access to multiple data sources is especially beneficial in our Knowledge Based Authentication product where the different sources provide data that is critical to generating out of wallet questions. Since companies rely on our fraud products to comply with the government’s Red Flag Rules and support Identity Theft Prevention Programs, it is extremely important that we have as much data as possible in our arsenal to thwart fraudsters’ activities and prevent consumers from being victimized by criminals. Keep in mind that these programs are only as good as the data used to confirm a person’s identity. Although information can be a double-edged sword, I don’t think one can have too much information especially when the goal is to minimize fraud.  

By: Kenneth Pruett I really thought I was going to be on easy street after receiving two emails in less than a week. The first email was telling me about some long lost relative in the UK who passed away over 10 years ago. His riches, which were over $20million dollars, would be forfeited to the government if an heir to the fortune did not claim the money. I was impressed how they figured out that I was the long lost “heir” to this millionaire just by looking at my email address. They also identified me specifically by calling me by name, “Dear Sir”.  The other email was a bit more intriguing. It involved a suitcase full of money. This was sent to me by a woman, who was in an abusive relationship but somehow had a chest full of money in America. For a certain % of the money, she was willing to pay me for my efforts to help her gain access to the suitcase and its contents. I am still surprised at just how many people fall victim to these types of email scams. They have been going on for quite some time, commonly known as the Nigerian 419 scam. I have noticed that the emails have changed a bit and seem to have become more convincing. The scammers also seem to be a bit more patient and work harder to gain the victims confidence in the legitimacy of the transaction. Individuals who give their information to these scammers will soon find out what a big mistake they have made. The goal of these groups is to gain access to a consumer’s money. They also will attempt to gather personal and banking information. Some victims of these scams may end up having their identity stolen. If they do attempt to use the identity information, they will typically make multiple attempts in a short period of time to establish credit. One way to help fight this type of organized fraud ring activity is to use velocity checks to track data elements. For example, a bank may want to know if a Social Security number has been used more than once within a certain period of time. Fraud analytic studies have also found that tracking data elements across multiple customers can also be very predictive in preventing fraud tied to identity theft rings. Elements often tracked are things like addresses, Social Security numbers and phone numbers. If these scammers attempt to take over consumers current bank accounts, they may attempt to change the address and possibly the phone number on the account. This is to prevent the true consumer from getting a phone call or mail relating to their account changes. Before making these changes, many entities often send out letters or make calls to the prior information before officially making these changes in their systems.  One other way to protect against account take over is to run the address and/or phone number against database of known frauds. A National Fraud Database can be helpful in identifying addresses that have been used in previous fraud activity. The Nigerian 419 scams will continue to be a problem. The need for money is just too great for some people to resist. For Banks, Card issuers, and Credit Unions, it is wise to put tools in place to help fight identity theft. This scam only represents a sample of the various fraudulent groups out there who make their living by ripping off these types of businesses. As I often say to my customers… I have done about everything in the fraud space, except commit it, which is the most profitable area. Good luck in your efforts to help us fight this ongoing problem.

With the issue of delayed bank foreclosures at the top of the evening news, I wanted to provide a different perspective on the issue and highlight what I think are some very important, yet often underestimated risks hidden within this issue. For many homeowners, the process of becoming delinquent and eventually going into default is actually a cash-flow positive experience. The process offers these borrowers temporary “free rent,” whereby a major previous monthly commitment is no longer a monthly obligation, freeing up cash for other purposes, including paying other bills. For those consumers who are managing cash flow issues each month, the lack of a mortgage commitment immediately allows them to meet other commitments more easily – making payments on credit cards and car loans that may have previously also become delinquent. From the perspective of a credit card or auto lender, the extended foreclosure process is a short-term positive – it allows a borrower who had previously struggled to remain current to now pay on time and in the short-run, contributes to portfolio health. Although these lenders will experience an improvement in delinquency rates, the reality is that the credit risk is simply dormant. At some point, the consumer’s mortgage will go into foreclosure, and which point the consumer will again be under pressure to continue meeting their obligations. The hidden and significant risk management issue is the misinterpretation of improved delinquency rates. Halting foreclosures means that an accumulating number of consumers are going to enter into this delayed stage of ‘free rent’, without any immediate prospect of having to make a rent or mortgage payment in the near future. In fact, according to Bank of America, “the average foreclosed borrower has not made a payment in 18 months”. This extended period of foreclosure delay will naturally result in a larger number of consumers being able to meet their non-mortgage obligations – but only while their free-rent status exists. A lender who has an interest in the “free rent” consumer is actually sitting on a time-bomb. When foreclosures stop or slow to a rate that is less than consumers entering it, that group will continue to grow in size – until foreclosures start again – at which point thousands of consumers will be processed and will have to start managing rent/housing payments again. Almost immediately, thousands of consumers who have had no problems meeting their obligations will have to start making decisions about which to pay and which not to pay. So, this buildup of rent-free mortgage holders presents a serious risk management issue to non-mortgage lenders that must be addressed. Lenders who have a relationship with a consumer who is delinquent on their mortgage may be easily fooled into thinking that they are not exposed to the same credit risk as mortgage lenders, but I think that these lenders will quickly find that consumers who have lived rent-free for over a year will have a very difficult time managing this transition, and if not diligent, credit card issuers and automotive lenders may find themselves in trouble. _____________________ http://cnews.canoe.ca/CNEWS/World/2010/10/08/15629836.html

By: Margarita Lim Consumer data has increasingly become commoditized over the years. There’s a lot of it and it’s arguably more easily obtainable. Social Security number and date of birth information was once considered confidential information. Today, those data elements in addition to traditional consumer data such as name, address and phone number are more publicly available (either legitimately or illegitimately). The advent and popularity of social network Internet sites have also made considerable information about a person’s life – both professional and personal, available for anyone’s viewing pleasure. So the question is…how much is too much information? If you’re a consumer who is particular about privacy, then you’ll have a lower threshold. On the other hand, if you’re a business trying to minimize fraud losses, then you’re at the other end of the spectrum – you can never have enough information to help prevent fraud – especially when you’re trying to keep up with fraud trends. Data is a key element in fraud prevention. Experian has access to many data assets and has a reputation for providing high quality fraud products in the marketplace. The data we use in our fraud products comes from multiple sources and sets us apart from our competitors because corroborated data is more reliable than data from a single source.  Having access to multiple data sources is especially beneficial in our Knowledge Based Authentication product where the different sources provide data that is critical to generating out of wallet questions. Since companies rely on our fraud products to comply with the government’s Red Flag Rules and support Identity Theft Prevention Programs, it is extremely important that we have as much data as possible in our arsenal to thwart fraudsters’ activities and prevent consumers from being victimized by criminals. Keep in mind that these programs are only as good as the data used to confirm a person’s identity. Although information can be a double-edged sword, I don’t think one can have too much information especially when the goal is to minimize fraud.  

By: Kenneth Pruett I really thought I was going to be on easy street after receiving two emails in less than a week. The first email was telling me about some long lost relative in the UK who passed away over 10 years ago. His riches, which were over $20million dollars, would be forfeited to the government if an heir to the fortune did not claim the money. I was impressed how they figured out that I was the long lost “heir” to this millionaire just by looking at my email address. They also identified me specifically by calling me by name, “Dear Sir”.  The other email was a bit more intriguing. It involved a suitcase full of money. This was sent to me by a woman, who was in an abusive relationship but somehow had a chest full of money in America. For a certain % of the money, she was willing to pay me for my efforts to help her gain access to the suitcase and its contents. I am still surprised at just how many people fall victim to these types of email scams. They have been going on for quite some time, commonly known as the Nigerian 419 scam. I have noticed that the emails have changed a bit and seem to have become more convincing. The scammers also seem to be a bit more patient and work harder to gain the victims confidence in the legitimacy of the transaction. Individuals who give their information to these scammers will soon find out what a big mistake they have made. The goal of these groups is to gain access to a consumer’s money. They also will attempt to gather personal and banking information. Some victims of these scams may end up having their identity stolen. If they do attempt to use the identity information, they will typically make multiple attempts in a short period of time to establish credit. One way to help fight this type of organized fraud ring activity is to use velocity checks to track data elements. For example, a bank may want to know if a Social Security number has been used more than once within a certain period of time. Fraud analytic studies have also found that tracking data elements across multiple customers can also be very predictive in preventing fraud tied to identity theft rings. Elements often tracked are things like addresses, Social Security numbers and phone numbers. If these scammers attempt to take over consumers current bank accounts, they may attempt to change the address and possibly the phone number on the account. This is to prevent the true consumer from getting a phone call or mail relating to their account changes. Before making these changes, many entities often send out letters or make calls to the prior information before officially making these changes in their systems.  One other way to protect against account take over is to run the address and/or phone number against database of known frauds. A National Fraud Database can be helpful in identifying addresses that have been used in previous fraud activity. The Nigerian 419 scams will continue to be a problem. The need for money is just too great for some people to resist. For Banks, Card issuers, and Credit Unions, it is wise to put tools in place to help fight identity theft. This scam only represents a sample of the various fraudulent groups out there who make their living by ripping off these types of businesses. As I often say to my customers… I have done about everything in the fraud space, except commit it, which is the most profitable area. Good luck in your efforts to help us fight this ongoing problem.