Florida Mortgage, Credit Loophole Subject of Debate

Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale.

Instead of spending several years repairing his credit, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet company to bump up his score almost overnight.

The result was a happy ending for Estruch, but the practice is sending shivers through the Florida mortgage industry and beyond.

Federal regulators are reviewing the practice.

After being contacted by The Associated Press for this story, Fair Isaac Corp., developer of the FICO score, said it will change its credit score system beginning later this year to clamp down on this little-known but potentially high-impact Florida mortgage loan loophole.

Instantcreditbuilders.com, or ICB, helped boost Estruch’s credit score by arranging for him to be added as an authorized user on several cards of people with stellar credit - people paid to allow this coattailing.

Parents also use this practice when they add their children to their credit cards to help them build solid credit of their own.

The pitch to those who are essentially renting their credit history for pay is seductive:

• You don’t need to worry about users of this service receiving duplicate copies of your credit cards.
• They won’t get account numbers or any of your personal information.
• At the end of the day, it’s essentially free money.

Brian Kinney, 44, a retired Army officer, earns more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories.

Kinney, whose FICO score is above 800 on the scale of 300 to 850, quit his job working at a Farmers Insurance agency and uses the ICB income to tide him over until he starts his own insurance agency.

Florida mortgage lenders worry that they’re taking on greater default risks by unknowingly offering lower rates than they otherwise would to applicants who artificially boost their credit scores.

Estruch paid $1,800 in December for three credit card spots.

By January, his FICO score jumped from 550 to 715. In mid-March, he closed on his four-bedroom beige stucco house after obtaining a 30-year fixed-rate Florida mortgage.

It carried a 7.5 percent rate and required no down payment.

“Everything now is score driven. I had a great mortgage history, but I got hurt because of my credit score,” said Estruch, who also works as a Florida mortgage broker, had bought and sold two houses previously.

Estruch said he’s current on Florida mortgage payments.

Companies like Largo, Fla.-based ICB are sprouting on the Internet with little overhead and no-frills marketing. They post ads on community Web sites like Craigslist and have sponsored links on Google and Yahoo.

Competitors of ICB have reached out to Florida mortgage brokers, lenders and real estate agents, flooding their e-mail with advertisements.

Jason LaBossiere, who founded ICB a year and a half ago, said his company receives 100 to 150 new leads daily - a number that has been growing - and those inquiries lead to 10-20 new clients a week.

ICB charges $900 for the first account, and less for additional ones.

The cardholder allowing the piggybacking on his or her credit history can get $100 to $150 per slot, depending on the age and credit limit. ICB pockets the rest.

The effect on credit scores can vary depending on what else is in a client report. But one borrowed credit card account can increase a score between 30-45 points, two between 60-90 points, and five between 150-205 points, according to ICB.

That’s because the computer program that calculates scores is essentially tricked into believing the credit renter has a better repayment history when it sees the added accounts, and that helps lift the credit report.

Once the credit card company files an updated report to credit bureaus - leading to a higher FICO score - the credit renter is removed from the account of the person allowing the piggybacking.

A higher credit score can save a consumer an enormous amount of money because it usually means lower Florida mortgage rates.

Perhaps most significantly, it also can mean the difference between qualifying for a Florida home loan or not.

According to Fair Isaac, a Florida mortgage lender would probably demand about a 9.8 percent interest rate on a $300,000, 30-year fixed mortgage for an applicant with a credit score between 500 and 579 - for a $2,585 monthly payment with principal and interest.

• A borrower with a score between 760-850 seeking the same Florida home loan would qualify for about a 6 percent rate that would cost just $1,796 a month.
• That savings of $789 a month, or $284,040 over 30 years.

Ginny Ferguson, a mortgage broker in Pleasanton, Calif., and credit expert for the National Association of Mortgage Brokers, considers the practice mortgage fraud, and says the trade organization is about to release a statement denouncing it.

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