Doomers will remember this January 28th post when Admin and I expressed concern at the discovery that HP computers from a failed subprimer storefront operation were scheduled for disposal at auction (on Craigslist, yet) with no effort being made to wipe the disks. Well, it’s a month later and the situation seems to be escalating. A report [1] coming out of Las Vegas earlier this week suggests that disgruntled employees at distressed subprime lender Silver State Mortgage may actually be stealing computers from the company. Should this indeed be the case, this is potentially much more serious than the auction, as there is the real danger an insider may have continued access to sensitive information on media taken from the work site. Furthermore, there were hundreds [2] of employees effected by events at Silver State. Dozens of similarly sized subprime lenders have experienced major disruptions or even gone out of business since December, so the risk to consumer security may not be trivial.

Financial service industry regulators have strict rules regarding the protection of consumers against violations of privacy and identity theft. What I fear is that once a distressed company loses cohesion, these safeguards could become weakened. Once a company’s problems become serious enough to force significant layoffs of staff, who’s going to protect the paper files and electronic media? When a subprime lender implodes, somebody needs to secure their customers’ data.

I have no doubt but that the vast majority of brokers and back-office workers in subprime origination take their fiduciary responsibilities dead seriously. Even then, a company in difficulties may be forced to lay off some key staff members before they have a chance to close down the operation gracefully. I have no idea if there are rules about receivership in the mortgage industry that address this concern. From having now seen two reports about computers walking from distressed subprimers (storefront and now lender), I suspect the problem is not high on anyone’s list.

Congressman John F. Tierney of Massachusetts’ Sixth Congressional District seems to be the go-to guy in Congress for the Identity Theft issue. As well, he’s interested in security issues as chairman of a Congressional sub-committee on the subject. Perhaps he or some of his professional staff is already on this case. One would hope so. If ever there was an ounce-of-prevention / pound-of-cure situation in consumer protection, this looks like it.

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Notes and References

[1]: "Anatomy of a failure: Inside the Silver State Mortgage collapse", by Matt Ward, Las Vegas Busness Press, February 26, 2007. Hat tip to L for this find.

Another Addison-based employee, who also wished to remain anonymous in hopes of getting paid for her last two weeks there, said she understands that employees in the Las Vegas headquarters were so upset that computers and other office equipment were stolen, and Silver State’s owners were threatened.

[2]: "Mortgage Company Closes Putting Hundreds Out of Work", KLAS TV (Las Vegas), February 15, 2007.

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