FundingShield’s fourth quarter fraud analytics showed wire and title fraud reached all-time highs in that quarter, with 51.8 percent of loans having at least one risk issue. This is about a 5 percent increase from the third quarter of 2023.
During the fourth quarter, 51.8 percent of transactions on a $61 billion portfolio had issues leading to a risk of wire and title fraud. On average, problematic loans had 2.2 issues per loan indicating the lack of appropriate controls by closing agents to identify and fix issues.
The fourth quarter was the highest risk quarter of the year for fraud according to the last three years of FundingShield reports. The fourth quarter of 2023 recorded higher-than-average findings across wire-related issues, and closing protection letter (CPL) and CPL validation / agent registration issues reached near all-time peak levels. CPL issues were found on 49.23 percent of transactions, CPL validation issues at 7.6 percent of transactions and wire risks on 8.45 percent of transactions.
This increase highlights ongoing cybersecurity challenges such as business email compromise (BEC) events and phishing attacks, according to FundingShield. Additionally, cybersecurity events at Fidelity and First American created the perfect storm for social engineering attempts by bad actors to impersonate and deploy numerous other schemes to seek the rerouting of funds.
Fourth quarter analytics compared with the third quarter showed:
- ~30 percent increase in the rate of errors per loan
- 22.28 percent increase in CPL-related issues
- 33.67 percent increase in wire-related issues
- 78.48 percent increase in license-related issues
- CPL validations, agent good standing, issuance limits or title file order registered in title insurer systems had a 35.85 percent increase =
As reported by FundingShield, 2022 vs 2023 showed increases in risk and fraud across the board of all risk categories. The holiday season is the peak for cyber security fraud attempts annually. This year, the fourth quarterfeatured two of the top four title insurance underwriters being subject to cybersecurity events where their email and communication channels, applications and data verification systems were taken offline. These events took weeks to resolve during the Thanksgiving and Christmas holidays.
“Q4 was a challenging period on the risk front for financial services, mortgage, and real estate firms where more sophisticated cyber security events have taken place,” FundingShield CEO Ike Suri stated. “We saw the challenges created by the Fidelity National Financial and First American Title cyber events prompted lenders’ risk and compliance, operations, funding and accounting teams to address the impact of bank closures, widespread technology or data outages and preparing for those challenges today. Communication, validation, verification, and system deficiencies propagated highlighting a lack of readiness. These intentional acts of cybercrime create financial losses within impacted firms but also threaten the enterprise valuations of listed public firms. This creates additional motivation for short players or parties who are looking to express their negative view in free markets.”
Increased geopolitical risk, aging technology applications that have gaps in security updates being patched, and an availability of artificial intelligence – (AI) driven tools to deploy attacks have added to the arsenal of cybercriminals attacking the mortgage and title space.
FundingShield stated it was able to help provide clients with customized workflow solutions and a precise view into the risk at the loan level for impacted transactions. This enabled clients to make better funding and closing decisions in real time, leveraging live data versus other approaches focused on providing risk reports confirming permissions to licensing or authority based on stale information.
“We are in the trenches, holding hands with our client’s loan by loan,” Suri said. “Our $5mm per transaction coverage is providing increased value in line with the rise in the risk environment. We have been speaking to COOs, CISOs, CFOs, heads of capital markets, and treasury on the need for funding controls as part of their cybersecurity defense and readiness as auditors or investors ask for evidence of a plan. We see this trend translating in tech-driven solutions to manage payment risk, vendor selection, ongoing monitoring of service providers and more.”