Editor’s note: With identity theft and mortgage fraud on the rise, the security and privacy of consumer data in real estate transactions is a real concern, and experts say that companies need to manage security policies closely to improve consumer trust and protect themselves from lawsuits. In this three-part report, Inman News looks at three aspects of data protection: online property listings, options for small brokerage offices, and how the lender community is safeguarding sensitive consumer information. (See Part 1 and Part 2.)

Concern over identity theft has skyrocketed in the wake of scandals last year over information theft from ChoicePoint and LexisNexis, among others, but industry experts say consumers’ sensitive mortgage-related data is well protected.

It’s easy to see why protection is necessary. Late last year, the nonprofit Identity Theft Resource Center in San Diego reported 110 security breaches affecting 56.3 million individuals in the United States.

Also last year, Nationwide Mortgage Group settled Federal Trade Commission charges that the company failed to adequately protect customers’ personal and financial information.

Since mortgage brokers and loan officers have access to so much personal information, it’s clearly important that they place a high value on safeguarding it.

“(Consumers’) information is safe and getting safer all the time,” said John Hall, a spokesman for the American Bankers Association. “All the mortgage information sitting at a bank is protected.”

Employee training and accountability, privacy policies, security standards and technology such as encryption and fraud detection software are some of the approaches banks use to safeguard data, Hall said.

“If a bank should send information elsewhere, even over a secure network, it is going to encrypt that information. They use Pentagon grade information technologies before sending any of your financial information across networks,” Hall said.

Madhavi Mantha, a senior analyst at Celent, a firm that scrutinizes banking technology, said, “Financial institutions have put a great deal of emphasis on security.” Mantha said banks have taken additional steps in one of the areas of greatest concern, outsourcing, to make sure information doesn’t fall into the wrong hands, such as using dumb computers instead of computers that would store information.

Justin Vedder, managing director of the Prieston Group, which insures companies against fraud, said, “Just from a standard practice, no matter whether in the mortgage industry or not, people are using greater firewalls. Their e-mails are encrypted. The exchange of data has become more secure.”

Vedder said that one of the biggest challenges is when identity theft does occur and a person’s stolen identity is used to apply for a real estate loan. This is a common form of mortgage fraud and the person with the purloined identity is colloquially referred to as a “straw buyer.”

“There are tools out there and certain skill sets to help identify those loans that don’t make sense” because they involve identity theft or other fraudulent elements, Vedder said. Indeed, there is a plethora of software companies offering technology tools to help combat mortgage fraud.

“It (the technology) is being used to protect the consumers’ identity even if that’s not the ulterior goal. It’s used to protect brokers from doing loans that might not have the characteristics of loans you want to buy, and you are protecting the consumer’s credit from being used for the gains of others,” Vedder said.

Vedder cautioned that the tools are “not the be-all and end-all.” In a quarterly study done by the Prieston Group of around 200 to 300 lenders this February, 75 percent of lenders said technology tools reduce the incidence of fraud less than 25 percent.

“Well, 25 percent is a significant factor when you look at the industry as a whole,” Vedder said. The best way to prevent mortgage fraud is by combining quality lending processes and practices with tools, he said.

The tools Vedder referred to are generally used to screen mortgage applications for telltale elements such as identity theft that might signal mortgage fraud. They are available from companies including Interthinx, Digital Risk, CoreLogic, DataVerify and Rapid Reporting. Also,  First American Real Estate Solutions’ soon-to-be-released LoanIQ is an example of such software created as part of a larger company’s offerings.

Interthinx offers a group of different products that perform a variety of services, including verifying identity and income, matching Social Security numbers and working to detect fraud at the loan level, among other things, said Jeff Moyer, the company’s vice president, sales.

The company taps a vast array of data to accomplish this, Moyer said. To verify that people are telling the truth on mortgage applications, for example, it’s possible to do reverse directory searches of national telephone records and U.S. postal records to make sure a person really lives at a given address.

One of the newest products offering data protection is Fidelity Information Services’ LSI FraudDetector, which will launch in mid-May.

The product will use databases to scrutinize borrowers’ backgrounds to find out whether they have been flagged as having identity theft issues, whether their Social Security numbers have been assigned to someone who is dead or too young to have that particular number, and the borrower’s inquiry history, Fidelity’s Brian Hershkowitz said.

A novel idea recently suggested by an MIT professor in a white paper is e-notarization laws to help stem the rising tide in forgeries and frauds in identity, mortgage and immigration transactions.

In the paper, “Electronic Notarization: Why It’s Needed, How It Works, And How It Can Be Implemented To Enable Greater Transactional Security,” published by the National Notary Association, Daniel J. Greenberg, director of MIT’s E-Commerce Architecture Program, outlines the legal and technological issues that must be addressed to ensure convenient and secure e-commerce in an era of rising document forgery and identity fraud.

Many paper-based transactions, from real estate conveyances to international adoptions to last wills and testaments, are notarized to prevent, detect and prosecute fraud.

As government agencies and industry move toward a complete paperless workflow, electronic documents will need to receive the same level of security as their paper counterparts.

Greenwood emphasizes the need for more uniform laws to “ensure that consistent and harmonious national infrastructures develop” and interstate commerce is not adversely affected.

The MIT professor’s proposal highlights the importance of human oversight in the technology surrounding mortgage transactions.

As Vedder said, “The biggest thing we want to avoid is becoming too push-button.”


Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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