Mortgage lenders must step up to the plate when it comes to wire fraud
There's a lot to talk about these days when it comes to the world of mortgage origination: rate hikes, purchase market, consolidation, e-mortgage, margin compression. All of these are critical topics that affect us day in and day out. But, when it comes to the issues of the day, we seem to consistently forget to mention one: wire fraud.
With millions (if not billions) in fraud losses reported, and more on the way, it's time for the entire industry to understand that this is not just a title agent's or closer's problem. It threatens all of us.
Just a few statistics are all it should take to demonstrate that fraud is a universal threat. Plus, it's growing.
In 2017 alone, the FBI received over 300,000 complaints (this is only what was actually reported) of fraud. Losses in the real estate sector alone totaled $56 million, with almost 10,000 victims, according to the FBI, and wire fraud is responsible for at least for $5 billion in losses to consumers since 2013.
In 2017, $969 million was 'diverted or attempted to be diverted' from real estate purchase transactions and wired to 'criminally controlled' accounts. In fiscal year 2016, the FBI recorded $19 million in real estate transaction wire fraud.
It's not that many are denying the threat that wire fraud presents. Rather, it seems to be seen as someone else's problem. Not enough mortgage-related businesses are taking real steps to protect themselves (and clients); be it in the form of protective technology or additional training. Unfortunately, we're still hearing things like "I'm sure banks and lenders have adequate safeguards" or "the title agents can handle it." None of this is true. And it's not only title companies — or consumers — who face this growing and evolving risk.
Let's start at the beginning. With the exception of the occasional cash transaction, it's the lender's money that's being stolen. In most cases, that stolen funding ends up on the dark web and is quickly laundered in other cities and countries. It's not a simple matter of recovery. Consider that the numbers we've cited are only those cases that have actually been reported. Further consider that, in most cases of wire fraud, the money's gone without a trace in a matter of hours. The FBI and related law enforcement agencies are overwhelmed, so unless your loss is a massive one, it may be a while before law enforcement can even address it.
Now consider the client experience. Wire fraud is evolving and growing more complex by the day. But most borrowers expect their investments to be safe once a bank or lending company gets involved. The assumption is that it's not all that easy to criminally divert a lender's money. And yet, it happens every day. How do you suppose the fraud victim views his or her lender once the money is gone without hope of recovery? Do you think he or she will share the story — and who the mortgage originator was? Do you think he or she will be back the next time a loan is needed?
Isn't the risk of loss and brand damage enough to make it the lender's problem? What about legal liability? A Federal District Court in Kansas not long ago ruled that a real estate agent and broker were partly liable after not meeting their duty to take steps to protect a homebuyer from wire fraud. Here's the catch: the Realtors didn't even represent the buyer.
Should this become the law of the land, how much of a stretch is it for a court to tell us that a loan officer, or mortgage broker, or entire bank have a duty to take reasonable steps to protect borrowers from wire fraud? What are the potential litigation and insurance costs that might be associated with failing to do so — all in the face of a crime that grows exponentially by the day?
Whether we like it or not, wire fraud isn't going away. Now is the time for the entire industry — Realtors, lenders, brokers, service providers — to work together to attack this menace. It starts with an acceptance that this is a problem for all of us. It's time to get the word out.