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Special Reports
Mortgage Fraud
TransUnion Will Address Authorized User Abuses
By James Comtois
CHICAGO--Artificially boosting one's credit score is a common fraud trend in the
mortgage industry. In order to help the industry determine the difference between the legitimate use of an authorized
user trade line and provide a substantial risk assessment when the practice is being abused, a provider of credit
and information management is delivering a service to mitigate authorized user abuse.
TransUnion here, after working with several major mortgage lending institutions,
has developed a customized service that enables lenders to identify consumers who may have added authorized user
accounts to artificially inflate their credit report and standing.
TransUnion developed a set of highly predictive credit characteristics for its
service. Through a combination of these credit characteristics, TransUnion can help lenders identify consumers
who may have significantly improved their credit profile by adding authorized user accounts to their credit file.
TransUnion's service can immediately assist lenders in improving their assessment of credit applicants and collection
practices on recently approved loans.
This analytic approach was applied to nearly 2 million approved mortgage applicants
in which TransUnion examined the extent authorized user accounts were being used to potentially "boost"
credit scores. Taking a look at mortgage approvals during a three month period from July through September 2006,
Trans-Union recognized that approximately 50% of this loan pool was potentially impacted by this practice.
By deploying a combination of "authorized user" and "non-authorized
user" credit characteristics, TransUnion will notify financial institutions of potential artificial score
inflation. The service is customized according to a lender's specific credit criteria and risk threshold and is
available online or in batch delivery.
Once these questionable authorized user trade lines have been identified by the
customer, TransUnion's Real Estate Division can initiate modifications to the TransUnion credit file that allows
customers to obtain a re-scored TransUnion credit report absent the authorized user trades. Add to that the ability
to monitor and trend market activity as it relates to this abusive practice and the benefits of the service in
terms of its ability to price mortgage loans based on real risk versus an inflated value and the service may be
quite appealing to some market participants in the mortgage origination business and others.
"The practice of artificially boosting one's credit score is not just limited
to the mortgage industry," said Dina Anderson, senior director in TransUnion's Analytic and Decisioning Services
unit.
"The key is to help the industry and our customers determine the difference
between a legitimate use of an authorized user trade line and provide a meaningful risk assessment when the practice
is being abused." TransUnion's analysis concluded that the vast majority of the newly approved mortgages were
legitimate users of authorized trade lines.
However, by using a newly created set of credit characteristics focused on this
industry-wide issue with an advanced analytic platform, TransUnion was able to identify small, manageable pockets
of consumers that were up to 70 times more likely to exhibit suspicious authorized user account patterns. These
high-risk consumers demonstrated a significant, recent change in their credit profile and subsequent credit score
by adding authorized user accounts to their respective credit history.
All of the TransUnion developed risk models, including VantageScore, do not take
into account authorized user trade lines when calculating a risk score. (Fair Isaac & Co., also has said that
it is taking steps to prevent the misuse of authorized user accounts in its scores in the future.)
"As the market adapts over the next several years in terms of the way it
manages the risk of the authorized user practice, VantageScore and TransUnion's custom authorized user [service]
provides lenders with an immediately available solution to more accurately assess the credit risk of a consumer
with authorized user accounts," Ms. Anderson added.
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