With loan production costs on the rise resulting in margin compression, lenders should be on the lookout to reduce costs wherever possible in the origination process.
In addition to the increased cost of production, loans are also at increased risk of wire and title fraud risk, with almost half of transactions appearing to be high-risk, according to a Q3 analysis by MISMO-certified wire and prevention fintech FundingShield.
Of all loans reviewed by the fintech company, 47% had at least one risk finding, FundingShield CEO Ike Suri said. Loans with at least one risk finding had an average of 2.1 risk findings per loan, across risk metrics such as licensed parties, wires, CPL data accuracy and CPL validity with title insurers.
Additionally, FundingShield found that 14.3% of transactions had wire-related issues, a number that remains alarmingly high.
“This growth comes on the back of all-time high values from the first & second quarter of this year. eClosings and other automation technologies continue to gain traction and simultaneously with new technology new fraud schemes and vulnerabilities have emerged,” Suri said.
“The real estate title and settlement arena continues to be a hot target for cyber criminals and fraudsters within and outside the U.S. borders.”
Increased costs related to wire and title fraud recovery
Wire and title fraud recovery can be expensive. FundingShield reports that in addition to lost funds from a single closing-related wire fraud event, the total cost of related reporting, audit, attorneys, compliance reviews and disclosures, investigation, engagement with law enforcement, and process to instate insurance has come to an all-time high. The company estimates the total cost to be more than $900,000 per event.
Additionally, insurance costs continue to rise for errors and omissions insurance and professional liability. Reduced coverage means lenders must be even more diligent. The disparate systems and processes used by stakeholders in the process can result in transactions not being properly registered or data issues existing within title insurers’ systems at closing time. Title agents continue to struggle with renewal challenges and the cost of insurance coverage as risk appetite in the insurance market has declined due to risks such as wire and title fraud.
In comparing Q3 2021 with Q2 2021 numbers, there was a 19.7% increase in fraud and risk exposure related to CPL errors, a 6.5% increase in CPL/agent validation errors with title insurers, and a 12.8% increase in state licensing issues among closing agents.
“These issues highlight production errors, misrepresentations, control issues and inaccurate data being transacted upon that create ideal conditions for fraudsters to prey,” Suri said. “Efficiencies are needed to catch issues pre-closing in title workflows that can help reduce post-close/trailing document costs and inefficiencies.”
This is crucial, Suri noted, as streamlined workflows from eClosings speed up processes but can create vulnerabilities at closing that leave openings for wire or title fraud.
“We are continuing to see how improving closing document validation through our processes is driving more efficiencies and less errors in the post-closing environment for our clients who are recognizing increased ROIs where many lenders are struggling to manage these back-end workflows and costs,” Suri said.
FundingShield helps prevent, identify and resolve inefficiencies, threats and exposures in a timely manner, allowing lenders to work without interruptions, concerns about reputation or losses by working with only valid, verified and vetted closing agents.