SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteWith Fraud Risk, It’s Not Who You Know, It’s What You Know

December 28, 2023
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

The recent news that both Fidelity National Title and First American Title were both victims of a serious cyber breach has shocked many in the mortgage and real estate industries. Surely two large, public, well capitalized businesses would have the technology, staff and expertise to protect their business operations from ransomware and hacking right? Apparently not.

Too many lenders have assumed that addressing fraud risk is for the small, mom and pop businesses who are the backbone of our business community and turned away from objectively and aggressively holding larger companies accountable to the same risk management evaluations and monitoring programs. ”We know them, “ lenders said. ”They are major players,” associations said. ”They told us they do not have to be vetted because they vet themselves,” many insisted.

The truth is that risk management is for everyone. Every single third-party service provider whom a lender conducts its business with must be objectively evaluated for risk on an ongoing basis, because today’s good risk may be tomorrow’s bad risk. It’s that simple.

When Secure Insight first started back in 2012, we were told that the settlement industry did not need risk management and we would not last. We were chastised for implying that holding everyone accountable to a well- managed and objective risk management assessment program would hurt the industry. Since then, billions in wire fraud losses, millions in vendor risk compliance penalties, and a large number of operational losses have proven that those who turn their backs on a robust, objective risk management program applied equally and effectively to every vendor, will pay a steep price. In contrast those who have embraced our approach have avoided such losses and continue to thrive despite pervasive fraud schemes.

Cyber fraud can impact anyone, even a Fidelity and a First American. The criminal elements are that good. The lesson for lenders is that it is not who you know, but what you know that helps deter fraud. It is the quality of the data, the uniform application of the program, and the constant vigilance that gives you the best chance to avoid becoming a victim. It’s nothing personal. As we said when we launched our Closing Guard tool, our motto is “trust, but verify.” This is still true today.

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