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Fraud risk soars: Q4 report reveals wire and title concerns

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TLDR:

Wire and title fraud risk reached an all-time high in Q4 2023, with 51.8% of transactions having issues that led to a risk of wire and title fraud, according to FundingShield’s quarterly report. Closing protection letter (CPL) issues were found on 49% of transactions, CPL validation issues on 8% of transactions, and wire risks on 9% of transactions in Q4. Two of the largest title firms, First American Financial and Fidelity National Financial, were affected by cyberattacks in the last two months of 2024, indicating ongoing cybersecurity challenges.

Main Article:

Wire and title fraud risk reached an all-time high in Q4 2023, with 51.8% of transactions having issues that led to a risk of wire and title fraud, according to FundingShield’s quarterly report. The report found that problematic loans had an average of 2.2 issues per loan, indicating the lack of appropriate controls by closing agents to identify and fix issues. The fourth quarter has traditionally been the highest risk quarter of the year for fraud, and 2023 was no exception, with higher-than-average findings across wire-related issues. Specifically, closing protection letter (CPL) issues were found on 49% of transactions, CPL validation issues on 8% of transactions, and wire risks on 9% of transactions in Q4.

The report also highlighted the cybersecurity challenges in the real estate industry, citing the cyberattacks on two of the largest title firms, First American Financial and Fidelity National Financial, in the last two months of 2024. These cyberattacks raised concerns about growing cybersecurity challenges and their impact on financial firms. While normal business operations have resumed at First American, the firm believes the cyberattack will have a material impact on its fourth quarter 2023 financial results. Fidelity National Financial also suffered a ransomware attack in November, which took its systems offline for a few days. These incidents not only create financial losses within impacted firms but also threaten their enterprise valuations.

The increase in wire and title fraud risk highlights ongoing cybersecurity challenges, such as Business Email Compromise (BEC) events and phishing attacks. FundingShield noted that BEC, a sophisticated combination of phishing and spoofing, extracted $2.7 billion from victims in 2022, a 47% increase since 2020. BEC involves fraudsters gaining access to a company’s email accounts and requesting customers to send closing funds to the wrong bank account. Phishing is the most prevalent tactic used for wire fraud today, affecting more than 300,000 victims.

FundingShield’s CEO and chairman, Ike Suri, commented on the impact of the cyberattacks on the real estate industry, stating, “These intentional acts of cybercrime create financial losses within impacted firms but also threaten the enterprise valuations of listed public firms. This creates additional motivation for short players or parties who are looking to express their negative view in free markets.”

The report underscores the need for financial services, mortgage, and real estate firms to strengthen their risk management and cybersecurity measures to mitigate the increasing wire and title fraud risk. The real estate industry must continue to address these ongoing cybersecurity challenges to protect against the growing threat of wire and title fraud.

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