Borrowers Beware: Lenders Screen Applicants via Social Media

by on February 12, 2014Shannon O'Brien

Some lenders are using the Internet, including social media sites, to check on borrowers before approving a loan applicationIf you think the National Security Agency is the only group spying on folks, think again. In fact, if you’ll be applying for a mortgage loan in the next few years, you might want to think twice about what you share on social media.

At one time, not too long ago, bank statements, tax returns and employment and salary verification letters were sufficient documentation for lenders. It appears that is no longer the case for some small lenders that are turning to applicants’ social media pages, mining them for data that corroborates or opposes what was stated on the loan application.

But Isn’t the Process Already Invasive?

Many people who are thinking of buying a home become intimately familiar with their FICO scores. This is the three-digit figure that the Fair Isaac Corporation comes up with that lets lenders know how much of a credit risk you are.

The riskier you appear, the higher the interest rate you’ll be charged, if you are even given a loan. From 300 to 850, almost everything a lender needs to know is in that number. Or, it was – until recently.

Despite the fact that a lot of the fault for the mortgage meltdown lies in the lap of the mortgage industry, lenders feel that they were burned far too often by borrowers who weren’t altogether truthful on their loan applications.

To deal with this, they were told to tighten lending standards. No longer could a hotel maid qualify for a $500,000 mortgage with no documents to prove income or even employment. So-called “liar loans” disappeared from the options presented to a borrower. Even FHA asked borrowers to come up with more skin in the game and changed the mortgage insurance requirements for the loans they agree to guarantee.

How Some Lenders Snoop

To confirm eligibility for a loan, beyond the documents borrowers are required to submit, some lenders have taken to the Internet, Googling potential borrowers and even snooping around on social networking sites like Facebook and LinkedIn. Apparently, they are looking for information that helps confirm the information on the loan application, such as identity and job status, according to the Wall Street Journal’s Stephanie Armour.

Right now, it’s only small lenders doing the Sherlock Holmes on social media sites, Armour claims. But – heads up – Fair Isaac Corporation is looking into following your social media breadcrumbs as well.

“There could come a time where certain social media could be predictive and we’re looking at that, but it isn’t yet,” Anthony Sprauve, senior consumer-credit specialist at FICO told the Wall Street Journal.

Lenders that do snoop call searching online profiles for mentions of debt or spending problems “alternative scoring metrics.”

“We like to see a well-rounded historic Facebook or Twitter profile as part of a potential customer’s digital footprint,” Mark Hannay, CEO of a new online consumer finance firm, told the New Zealand Herald. “This not only helps from a fraud point of view, suggesting the person is real, but also provides us a rich seam of data to dig further and make a better lending decision.” He also said that the loan application asks customers to provide their Twitter and Facebook usernames.

With Friends Like Yours

According to CNN Money, one small financial lending firm will search your friend list to find out if anybody on it has loans with their company. If they find a customer among your friends, and that person is delinquent in paying back the loan, it is you who will suffer – by not getting the loan. They won’t lend to you based purely on the fact that you are “friends” with one of their delinquent borrowers.

Will the big mortgage lenders take this ball and run with it? Maybe not, John Ulzheimer, a credit expert, tells CNN Money. He claims that social media data is a poor indication of a borrower’s risk factor and that while FICO only looks at a few factors from a person’s credit report, they are “incredibly predictive of risk.”

In case you are wondering, yes, the government is watching this situation closely. In fact, according to Armour, the Federal Trade Commission will address the use of alternative scoring in a series of seminars scheduled for this summer.

{ 2 comments… read them below or add one }

Mark Weber February 16, 2014 at 6:31 am

Looking at public social profiles makes sense when screening job applicants so why not loan applicants purchasing homes. Looking at a persons LinkedIn profile makes the most sense.

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Marie Youngblood-Krebs February 14, 2014 at 2:19 pm

Privacy issues are difficult to examine concerning Social Media since people generally have the feeling what they post on social is personal, and therefore private. Yet, they are posting extremely visibly – on the internet! Which is a completely public venue. Just like Facebook was being “invaded” by potential employers, it makes sense that in assessing risk factors, lenders will make use of everything available to them, and that includes Social Media postings. So, do we attempt regulation by laws? Should people stop using social media? Should we become a society frightened at every turn that everything we say can and will be used against us? I’m still trying to figure out what my credit score has to do with the cost of car insurance! Shouldn’t that be based on my driving history instead of my credit history? Is the silly joke I posted on FB gonna swing around and bite me on the butt????

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