According to a report this evening by the American Land Title Association (ALTA), a recent survey of their members reflected that “cyber criminals attempted to trick employees to wire funds to a fraudulent account in a third of all real estate and mortgage transactions.”
ALTA’s report went on to state however that “training and education seem to be working as funds were only wired to a fraudulent account in a little over 8% of these attempts.”
This report follows on the heels of an FBI report indicating that there were $1.8 Billion in losses in the United States in 2020 due to email compromise (phishing et al ) schemes.
The volume of residential mortgage transactions in 2020 was the highest since 2005, and 2021 while experiencing a drop in refinances has seen an offset by a rise in purchase volume which will continue to offer sustained high transactional figures. Applying these figures to today’s business operations is worrisome.
The Mortgage Bankers Association (MBA) recently reported that “Overall mortgage originations in 2021 are expected to fall to around $2.75T from 2020’s banner $3.57T total.” If ALTA’s numbers are accurate, this means that as much as $907B in funding wires could be threatened this year, and $72.5B in funding wires potentially compromised and lost. These are scary numbers.
Lenders historically have been weak in managing closing table fraud. While many check the boxes when it comes to compliance, fraud deterrence and prevention often get lost in the flurry of activity surrounding the loan process. This is especially true in times of low rates and booming activity as we have all experienced in the past 18 months.
I have studied figures going back to 2000 regarding theft of funds and losses from all types of fraud in residential mortgage transactions. While wire fraud is a major issue for lenders and one incident can create a significant financial loss, the risk of all types of title and closing fraud has been estimated by the FBI to be in the range of 11% of overall mortgage fraud figures. Combining the report by ALTA regarding wire fraud risk with the known annual percentage of losses to lenders relating to title and closing table fraud the problem deserves serious attention in the industry.
Lenders should be developing more robust fraud deterrence, detection and prevention policies while leaning on third party service providers, vendors with the experience and focus to offload the cost, effort and management required to give lenders an even playing field with the criminals preying on their funding wires and loan profits.
Let’s be careful out there!
For more information see ALTA’s 2021 Wire Fraud and Cyber Crime Survey and visit the MBA’s website for 2021 industry origination projections.