From the "You can't make this crap up" file comes this story reverberating across the RE.net blogosphere.  The story?  You can now rent someone else's credit score to improve your score to a point where you can qualify for almost any mortgage you want.

Read that again...slowly.  Rub eyes.  Repeat.  .... Let's move on.  Here's how:

The Internet company, Instantcreditbuilders.com, or ICB, helped ... raise his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit. Those people were paid to allow this coat-tailing.

...

The effect on a credit score varies depending on what else is in a client's report. But one borrowed credit-card account can increase a score between 30 and 45 points, two between 60 and 90 points, and five between 150 and 205 points, according to ICB. The added accounts make it look like the credit renter has a better repayment history.

OK, so what does this mean in the grand scheme of things?  First is it fraud?  The National Association of Mortgage Brokers thinks it is:

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

But is it that clear?  According to the FTC it appears that the practice is legal. 

So far, federal authorities have yet to make a ruling on the practice. "What I've gathered from attorneys here is that it appears to be legal," said FTC spokesman Frank Dorman. "However, the agency is not saying that it is legal."

And fraud usually has to do with suppression of the truth and false suggestions.  I don't know if these two legal standards apply here.  The truth isn't suppressed.  A credit report shows which cards are authorized signer cards.  Derogatory information isn't removed from the credit report either.  False suggestions don't really take us any where because the score is based on information in the report.

Trust me, I'm calling bullsh*t on this whole practice - but right now you have to tip your hat to the guys at ICB who figured out this loop hole.  I think it is unethical and should be an illegal practice; but can it be proven as fraud in a legal setting?  Visit Jay over at his blog for the definition of fraud and see if it meets your test. For me, I am not so sure.

It just exposes the flaws in the current underwriting systems.  Lenders should rely more on an entire credit analysis rather than FICO alone.  That would solve a lot of this problem.  Lenders should change underwriting guidelines to require that authorized signer accounts only be counted for blood-relatives or something similar.  The score-based model is too wide-open - obviously.

What it further exposes is just how desperate and shady some of these mortgage brokers are!  I'm one of them and it makes me sick.  PEOPLE, the goal is not to game the system - the goal is to be a conduit for good loans that help the people taking the loan and that meet the covenants we signed when we agreed to send loans to our investors. 

Good for NAMB for denouncing the practice, good for the newspapers for bringing it to the forefront, good for the bloggers spreading the news, and good on the lenders that make changes to quickly address this loophole in their underwriting guidelines.

Anyone want to take an over/under on how many new broker agreements I'll have to sign in the next 14 days because of this?

Special thanks to Housing Wire, Calculated Risk and The Phoenix Real Estate Guy for pointing me over towards this pile.