Lenders Must Step Up to the Plate When It Comes to Wire Fraud

Wire fraud is con­sid­ered a con­sumer and ti­tle agent is­sue, but the mil­lions of dol­lars it’s di­vert­ing from home pur­chase trans­ac­tions make it an is­sue mort­gage lenders need to ad­dress, too.

National Mortgage News - - Voices - By Thomas Cronkright II Thomas Cronkright II is co-founder and CEO of Cer­tifID, based in Grand Rapids, Mich.

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?

Whether we like it or not, wire fraud isn’t go­ing away. Now is the time for the en­tire in­dus­try 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.

Thomas Cronkright II

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