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ClosingFintech

FundingShield reports a sharp increase in title fraud risk in second quarter

Data mismatches signal uptick in fraud

According to an analysis by FundingShield, increases in CPL and agent validation errors with title insurers rose by 530% in the second quarter of 2020 compared to the first. Fraud and risk exposures in CPL errors and issues rose 50%, and there was a 135% increase in state licensing issues.

Data inconsistencies and data mismatches are the first way many kinds of fraud manifests itself, said Adam Chaudhary, president of FundingShield. Since the COVID-19 pandemic hit, there has been a huge uptick in missing data on the validation of agents and the validation of the existence of those transactions in the system of title insurance companies, Chaudhary said.

“The reason the figures matter in terms of CPL errors is that system data and title systems versus system data and LOS systems — i.e. what they believe to be the transaction — were mismatching that many times of transactions,” Chaudhary said. “That number is astronomical.”

A host of things could be causing these numbers, including negligence, potential fraud, human error, and disjointed processes. According to FundingShield Chairman and CEO Ike Suri, the risk of wire and title fraud in the closing and settlement space continued to grow due to fast moving changes in closing practices and work-from-home policies.

“These inconsistencies at the CPL documentation level, a document that’s generated out of the system of the title insurance company, now has an agent going in generating from a title perspective, and the document from the insurance company system doesn’t match what the lender has,” Chaudhary said.

Chaudhary also explained the rise in state licensing issues most likely stemmed from people who could not renew their licensing in time as several counties and states were closed to that ability and are suffering from a backlog.

“You want to operate from California and to go to Oregon state, you need an Oregon license or else you’re violating the law in Oregon, right? So because of that these misrepresentations regarding licensing are also alarming and when we see a rise of the numbers, we saw licensing defects,” Chaudhary said.

“Most of the scenarios that needed analysis had nothing to do with the backlog in licensing and everything to do with these are parties that were trying to take on transactions outside of state boundaries, because they were able to generate the business. They were hoping to close the loans because of deficiencies between insurance underwriter systems.”

According to FundingShield, some of these errors are not reported because they are not observed until post facto when a problem arises. FundingShield recommended highlighting where staff have the greatest ability to alter data and filter title information.

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