As the mortgage world becomes more technologically interconnected, the risks to cybersecurity, data and infosecurity increase. These risks should be top-of-mind for mortgage professionals, as evidenced by recent changes at Freddie Mac that emphasize risk mitigation and cybersecurity efforts.

In October, Freddie Mac issued Bulletin 2021-31, updating its Seller/Servicer and Third Party risk mitigation requirements. The bulletin includes language that makes Freddie Mac a third-party beneficiary to vendors and third-party service providers of Freddie sellers and servicers, and includes notification requirements with direct reporting to Freddie for certain events such as a security incident.

Risk data

These cybersecurity concerns are supported by data that shows that wire and title fraud risk remained at elevated levels in Q4 2021. According to a Q4 analysis by MISMO-certified wire and prevention fintech FundingShield, 42% of loans reviewed by the fintech firm had at least one risk finding, and of those loans, an average of 2.1 risk findings existed per transaction.

“This is a sign of continued heightened levels of overall risk and consistently highly concentrated risk elements for problematic loans,” FundingShield CEO Ike Suri said. “In all categories, the fourth quarter levels remained above-average on the approximate $75 billion-plus sample set pulled from Q4 2021 data.”

In comparison to the previous quarter, there was an additional increase of fraud/risk exposure related to CPL errors in 40.3% of transactions. Additionally, Q4 2021 saw a 5.4% increase in CPL/agent validation errors with title insurers versus the 12-month average and a 2.4% increase in state licensing issues among closing agents versus the 2021 average.

“These issues highlight production errors, misrepresentations, control issues and inaccurate data being transacted upon that create ideal conditions for fraudsters to prey,” Suri said.

Closing complications

According to Suri, many of the fraud risk gaps exist in the closing process. Continued expansion into eClosing and automation technology does not necessarily reduce or eliminate the risks of cyber fraud or fraud schemes penetrating settlement and title firms.

And even as eClosings speed up processes, they can create vulnerabilities at closing for wire and title fraud. Efficiencies will be needed to catch issues in title workflows pre-closing, to help reduce post-close and trailing document costs and inefficiencies.

“Most eClosing platforms are integrating with our fintech solutions that provide live data and the largest ecosystem of verified and vetted closing parties,” Suri said.

Additionally, as the market braces for a purchase-driven year with fewer transactions and higher variability of closing and settlement agents, lenders are finding it more difficult to manage closing agent diligence and review. The cost to manage these reviews, compliance and agent approvals is bound to increase over time, alongside demand for technology to help manage such.

“We have seen a good portion of our clients restrict approval to closing agents who are affiliated with larger more well-established title insurers and in many cases move to direct operations of title insurers to provide title and settlement services where they have the ability to select closing agents,” Suri said.

FundingShield helps prevent, identify and resolve inefficiencies, threats and exposures in a timely manner. This allows lenders to run their businesses without interruptions or losses by working with only valid, verified and vetted closing agents across the country.

To read FundingShield’s full Wire and Title Fraud Index for Q4 2021, click here. For historical quarterly reports or more information, reach info@fundingshield.com