It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

Recently, the Federal Bureau of Investigation (FBI) released its annual Internet Crime Report.

(Read it here: https://www.ic3.gov/Media/PDF/AnnualReport/2021_IC3Report.pdf)

The annual report which catalogues data on various cyber crimes estimates that in 2021 overall losses were nearly $7 billion dollars, noting that “America experienced an unprecedented increase in cyber attacks and malicious cyber activity.”

On March 21st, the Biden Administration issued a further warning to all consumers and business owners to expect the possibility of even further cyber attacks originating from Russia and Eastern Europe. (Read the White House Statement here: https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/21/statement-by-president-biden-on-our-nations-cybersecurity/)

Mortgage lenders have far too often been prime victims of cyber fraud due to the relative ease which many criminals have had in impersonating parties to a mortgage transaction and intercepting proceeds and payoffs in the closing process. While many participants in the mortgage lending process have heard about cyber fraud and some companies have taken measures to educate, warn and seek to prevent losses, the fact remains that wire fraud in particular has had catastrophic effects on the finances of lenders, borrowers, attorney and title agents.

Recently while attending the Lender’s One Conference in Arizona, our staff had occasion to speak to many lenders, including warehouse banks. From these meetings a misconception arose. Lenders sometimes avoid managing closing table and wire fraud risk because they assume their warehouse bank is managing the risk for them. However warehouse banks are not doing that at all, rather they are protecting their limited risk of loss of funds and in no way are indemnifying or permitting a risk of loss by a lender or consumer to be shifted to them. This misconception leaves many lenders fully exposed to the risks of cyber fraud and closing table fraud generally.

Another interesting development which we learned at the L1 Conference is that insurers are beginning to request that lenders prove they have a robust wire fraud and closing fraud program in place at the time of a renewal of commercial errors and omissions policies. Relying on your warehouse bank is not proof of the required fraud deterrent and prevention measures.

Anyone with more than a decade of experience in the mortgage industry knows that when the market falls, as it has with the increase in interest rates and gradual slide towards a recession, that criminal fraud rises. Lenders experiencing the pain of reduced volume and increased expenses to originate loans need to be fully prepared to weather the storm of the likely explosion in fraud attacks. One bad closing can put an unprepared lender out of business.

As always if you do not have a solution to address wire and closing fraud, or if you are unhappy with your current solution, call us for a demo. With over 100 satisfied lender clients nationwide, and over 17 million closings without one cyber or other closing table loss, our solution is what you need for peace of mind.

http://www.secureinsight.com