The Koyal Training Group, The long reach of identity theft

WASHINGTON — The numbers of affected consumers are as yet impossible to predict, but mortgage-credit experts warn that the recent massive data breaches at Target, Neiman Marcus and other retailers could have significant side effects on some real-estate transactions in the coming months, as damaged credit files depress scores and jeopardize loan applications and home sales.

The Target breach alone could touch as many as 70 million credit- and debit-card customers, according to the company. Neiman Marcus says data on 1.1 million of its customers may be vulnerable to fraud.

So what are the potential blowbacks on home sales and mortgage applications? Start with the basics. Identity theft, if not corrected quickly, can make a mess of anyone’s credit-bureau files. Though victims may not be liable for the unauthorized debts racked up, their credit reports — and in turn their credit scores — can be damaged for weeks or months.

Listen to Terry Clemans, executive director of the National Consumer Reporting Association, the primary trade group that represents independent credit-reporting companies serving the mortgage industry.

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Clemans says that mass identity heists such as those at Target and Neiman Marcus have the potential to create “havoc on credit files for as long as it takes for the consumer to document (that) the accounts are due to identity theft and get them removed from the file.”

“The impact on credit scores, although short term, is devastating because they are current defaults and (trigger) a big hit to the score. With the sizes of the breaches, this could be painful for a long time.”

Sarah Davies, senior vice president for VantageScore Solutions, one of the two major providers of consumer-score models used by banks and other creditors, confirmed that unauthorized debts on credit reports could interfere with certain transactions you want to undertake, such as buying a home or applying for a mortgage.

Among the scenarios that could begin surfacing as the information stolen from retailers is sold and used in the coming months:

• Home sales could be knocked off track by the sudden appearance of new debts on buyers’ credit reports.

FRAUD AND COMPLIANCE

Many lenders now monitor national-credit-bureau files electronically from the date of loan approval to moments before closing. Even if you explain that you were a victim of identity theft, your financing could be put on ice until you and the bureaus clean up your reports.

That could cause you to miss contractual deadlines with a home seller and, worst case, cause you to lose the house.

• Undetected run-ups of balances on credit cards could seriously affect “utilization ratios” — how much of the available credit maximum a consumer has drawn down — and cause declines in scores.

• Undetected use of your information to create one or more new credit cards could be especially damaging and time consuming to fix.

FAIR CLAIMS TRAINING

Clemans notes that although merchants and the bureaus may be eager to help resolve identity-theft situations, they are also on guard against attempts by consumers to blame everything negative in their files on identity theft.

They’ll want proof and documentation before expunging the bad information. In the mortgage context, there’s another complication: Although independent credit-reporting agencies can often help advise loan officers on ways to improve their applicants’ scores — a service known as “rapid rescoring” — they can’t help make identity-theft repairs.

That needs to be done by the consumers — contacting the bureaus, placing fraud alerts or freezes on their accounts, then working to clean out the bad stuff.