Identity Theft Tool Could Hurt Home Sales

Identity theft credit freeze option could make it hard to obtain prompt financing

Many stories have been written in the last few years about the topic of identity theft where someone steals vital financial information, such as a Social Security number and credit card numbers and poses as someone else while incurring massive amounts of debt in that person’s name. Just a month ago, a hacking attack at the offices of a major credit card processing company compromised nearly forty million credit card numbers, leaving many Americans justifiably concerned about having their identities stolen. Sealing someone’s identity is fairly easy to do, but unraveling the problems caused by the theft can take years to resolve.

Recent legislation passed in Texas and California, and proposed in several other states, offers to help ease these concerns by allowing consumers to place a “freeze” on their credit reports. Doing so makes it impossible to obtain credit or even to obtain a copy of one’s credit report unless the freeze is lifted. Many in the real estate industry are worried that such freezes may make it more difficult for consumers in some markets to purchase homes or obtain a timely home equity loan.

The concept of freezing credit is simple: when a consumer applies for credit, the lender contacts one of the three credit bureaus and requests a copy of the borrower’s credit report. That report contains the borrower’s FICO score, a number ranging from 300 to 850 that represents that consumer’s ability to repay a loan promptly as well as their payment history. The new legislation allows consumers to place a “freeze” on their credit reports, which effectively stops their ability to obtain new credit. If a lender cannot obtain a copy of the credit report, then they cannot issue credit. The consumer has the ability to turn the freeze off at any time and can usually do so online at a password protected Web page.

So how does this affect the ability to buy a home? According to those in the real estate industry, obtaining a credit report promptly is crucial to buying a home in some markets. In many cities, the real estate market is “hot” and homes often sell in a few days or even a few hours. Buyers often bid on homes, driving the price well beyond the asking price. A key to sales in such markets is the ability of sellers or their representatives to quickly ascertain the ability of prospective buyers to qualify for a loan. If a potential buyer has a freeze on their report, they can undo it, but the process often takes a few days. A weekend may delay the process even more. What if the buyer has forgotten that they have frozen their report? What if he or she has forgotten the password necessary to unlock the freeze? All of these problems could cause a prospective buyer to lose out on a home that he or she may wish to buy as lenders are careful about issuing loans.

These laws are fairly new, and on the surface, the ability of consumers to protect themselves from identity theft by freezing their credit reports seems like a good idea. Time will tell if doing so will affect the real estate industry in any significant way. In the meantime, those who are worried about identity theft and who need to purchase a home should make sure that their credit reports can be accessed in a timely manner by those who need them.