For experienced mortgage lenders, the scenario is all too common. But, just before their closing date, the borrower receives an email providing new instructions on how and where to wire the funds for their new home. They dutifully wire the funds, only to discover that the title company never received the wire transfer. What happened, and where did the money go?
Wire transfer fraud begins long before a client’s closing date. Fraudsters, hoping to bank a borrower’s down payment, begin their reconnaissance well in advance. They start by gathering information on the borrower, the lender, the real estate agent, and the title company. They may use phishing attacks to gain access to the email accounts of trusted individuals, allowing them to send legitimate emails to mortgage or real estate clients. These emails may include copies of company logos and actual mortgage documents to make their communications appear legitimate.
After monitoring the lending process from the sidelines, they choose the final days before closing to make their move. Impersonating a trusted team member, they send out new instructions to wire the funds to an account within their control. It can be days before the error is caught, making it virtually impossible to reverse. Borrowers may have to walk away from their dreams without the proper funds, and lenders may be left empty-handed.
Table of Contents
Understanding the Problem
Wire transfer fraud, also known as real estate wire fraud, is a rapidly growing problem within the mortgage industry, costing lenders and borrowers billions each year. Between 2019 and 2020, there was an increase of 17% in the number of wire transfer fraud victims.1 While eliminating all fraud is an ambitious undertaking, there is much that lenders can do to reduce the incidence of this type of fraud.
The first step is recognizing that wire transfer fraud is largely preventable – if you’re watching for it. Wire fraud attempts are more likely to be successful when lenders and their employees fail to take the proper precautions and verify the information they have before transferring funds.
That is not to say that wire fraud results from employee error. It is not negligence that always enables fraud. Rather, a lack of training often allows fraud attempts to succeed. Busy employees working tirelessly to close multiple loans in one day and juggling mountains of paperwork may overlook red flags when a last-minute change is requested.
How to Prevent Wire Transfer Fraud
Many tools are available to help lenders protect their clients from falling victim to mortgage wire fraud. Developing a system, utilizing the proper technology tools, and implementing steps early in the lending process provides fraud protection for all parties involved.
Employees unfamiliar with certain wire transfer fraud tactics are more likely to miss the signs of this scheme. Offering training in mitigating cybercrime can empower your employees to stop wire fraud attempts against your organization. There are many training opportunities online or through title and escrow companies or local lending institutions. Check with those in your area to see what type of training they offer.
Get to Know Your Contacts
Gather contact information for everyone involved with the real estate transaction early. Make sure you know who they are and what their role is. Be sure to verify who will be in charge of wire transfers and ask for their phone number. Whereas many wire transfer fraud cases employ fake emails, it is wise to pick up the phone and make a call to verify wire transfer information.
Last-minute corrections and changes do occur. However, it would be unwise to accept them at face value. Preventing wire transfer fraud requires diligence in verifying these changes. Having a pre-established method for ensuring information received in the final days before a loan closes is vital. You may be right to be suspicious if you receive new instructions for a wire transfer. Validating the account number, routing number, and name on the account with the proper contact helps ensure the money arrives where it should.
Even if the lending process proceeds smoothly from beginning to end, take time to verify everything again before you initiate a wire transfer. Reach out to your contacts to ensure your information is correct. Then, verify it all again with the bank or wire transfer company. Every employee is fallible. Double-checking ensures the information is entered correctly.
After wiring the funds, call the receiver to verify they received the funds. Mistakes discovered before funds are accepted on the receiving end may be correctable.
With mortgage fraud on the rise, companies like Certified Credit offer automated solutions to aid lenders with mortgage fraud detection. These tools quickly and accurately verify account information, including:
- Account numbers
- Account names
- Routing numbers
They can also uncover red flags associated with the settlement agency by verifying:
- The company is free of sanctions
- The title insurance agent’s license or attorney’s bar card is in good standing
- There are no reports of fraud in connection with the agency
- he agency does not appear on industry watchlists
The methods that fraudsters use to obtain mortgage funds can be compelling to unsuspecting lenders and borrowers. The key to reducing the incidence of this pervasive problem is educating and training employees to spot the problem and respond appropriately. Implementing reliable practices, processes, and procedures, as well as adopting automated checks, can help reduce losses and prevent fraud.
1. Wire fraud. www.nar.realtor. (2021, November 9). Retrieved April 8, 2022, from https://www.nar.realtor/wire-fraud