As the Biden administration recently spotlighted, cybersecurity remains a high-level concern for the privacy and security of Americans. In fact, the FBI’s Internet Crime Complaint Center (IC3) has experienced a record number of reported complaints as of late, jumping from 5 million logged complaints as of March 12, 2020, to 6 million as of May 15, 2021.
FundingShield, a MISMO-certified wire and title fraud prevention fintech, stated that these events are underreported, as shared by its President Adam Chaudhary on a recent California MBA webinar hosted alongside the FBI.
The cybercrimes highlighted by President Joe Biden and the IC3 include threats to the financial services industry, such as breaches in workflows that affect lenders, title and settlement companies, or real estate partners and can lead to wire and title fraud.
In its analysis of Q2 2021 figures surrounding mortgage and real estate closings, FundingShield found an overall increase in the risk of wire and title fraud, with two in five (40%+) transactions categorized as high risk. Additionally, 15.4% of transactions had wire-related issues, a consistently large number of transactions that has persisted for the past year.
New tech means new opportunities for fraud
According to FundingShield CEO Ike Suri, part of the issue is that introducing new technologies for automation and further digitization of the closing process can also create new opportunities for cybercriminals.
“Wire and title fraud risk continued to rise in the second quarter of 2021 after the all-time high values from the first quarter of this year,” Suri said. “eClosing and other automation technologies continue to grow in adoption and simultaneously open up doors for new fraud schemes.”
Adoption of these digital tools, including applications, hybrid and eClosing solutions, also raises concerns about, “Control issues, data accuracy, data security and integrity, connectivity, production errors and misrepresentations,” he added. These can create ideal conditions for fraudsters to exploit, leading to losses and exposure.
When comparing Q2 2021 to Q1 2021, FundingShield found a 21.7% increase in CPL-related errors, an increase from last quarter’s record-high value. There was an additional 62.1% increase in errors related to CPL/agent validation in title insurer systems, as well as an 114.6% increase in state licensing issues and invalid or non-identifiable licenses of closing agents.
These errors can lead to exploits by bad actors, such as fraudulent wire transfers and stolen closing funds.
“American citizens and businesses are under attack from hackers and cyber criminals more so than ever before,” Suri said.
Each data breach serves as, “a gateway for the bad actors and criminals to rob sensitive data – which is today’s liquid gold – for purposes of monetary gain or extortion,” Suri added. “Additionally, the current B2B and B2B2C business climate is experiencing a rise in mergers, acquisitions and divestures – these activities can also lead to vulnerabilities.”
Biden released his “Executive Order on Improving the Nation’s Cybersecurity” in May as part of his administration’s efforts against cybercrime, making it a priority to strengthen the cybersecurity of both the public and private sector.
In this order, Biden wrote that “The private sector must adapt to the continuously changing threat environment, ensure its products are built and operate securely, and partner with the Federal Government to foster a more secure cyberspace.”
The financial sector is working to improve its approach to cybersecurity following this order. Several federal banking regulatory agencies have recently requested public comment on proposed guidance intended to help banking organizations identify and address the risks associated with third-party relationships and technology-focused entities.
According to the proposed guidance, the use of third parties by banking organizations does not eliminate the need for risk management but instead may present increased risks to those organizations and their customers. It goes on to provide framework for each stage of the third-party relationship life cycle, including developing a plan for strategy and risk management and ongoing monitoring of third-party activity and performance.
This renewed focus on security and risk management is more important than ever following cyberattacks such as the recent ransomware attack on Cloudstar, a major title industry cloud services provider.
The mid-July incident led to an outage in Cloudstar’s services, keeping an unknown number of loans from closing and affecting an undisclosed number of clients. According to the American Land Title Association, Cloudstar operates six data centers in the U.S. and has more than 42,000 users.
FundingShield has processed $1.4 trillion in closings for clients with the mission to prevent wire and title fraud by working with homebuyers, lenders and other stakeholders in the closing process.
According to Suri, using innovative tools to improve closing document validation drives more efficiencies and results in fewer errors in the closing and post-closing environment for the company’s clients.
“FundingShield helps prevent, identify and resolve these inefficiencies, threats and exposures in a timely manner so lenders can run their businesses without interruptions, reputational nightmares and/or losses by working with only valid, verified and vetted closing agents across the country,” Suri said.
The company’s reviews go beyond a vendor risk rating or annual risk review of closing agents, taking a look at transaction-level risks and inaccuracies that are key indicators of fraud. Several lenders in its implementation pipeline had previously lost funds to criminals or experienced increased operating costs due to a lack of verifying the elements mentioned in its risk report.
“We remind market participants to leverage live data, active transaction level controls and workflow-based risk management tools such as FundingShield’s transaction-level tools to prevent fraud,” Suri said.
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