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The number of fraud attempts on mortgage companies leaped by more than one-third between 2022 and 2023, with old methods becoming new again when it came to how the crimes were committed.
Although companies are more vigilant of growing risk and focused on prevention, perpetrators are finding new ways to commit their crimes, leading to the higher number of threats, a new report from Lexisnexis found.
“New forms of fraud elevate the risk of loss for both financial institutions and their customers,” said Kimberly Sutherland, vice president, fraud and identity strategy at Lexisnexis Risk Solutions, in a press release.
“Our study shows that organizations are facing challenges in combating fraud from international transactions and scams, despite efforts to educate consumers.”
Within the home lending segment specifically, businesses saw an average of 2,619 monthly fraud attempts last year, increasing 34.6% from 1,946 in 2022. Of the total average, a 54% share, or 1,417, proved successful, while 1,202 were prevented.
The pace of growth exceeded the rate at banks and investment firms, but trailed other credit lenders, which saw both the fastest rate of growth and highest number of attempts at 3,271.
Every dollar of fraud loss ended up costing mortgage firms $4.36 on average to address and fix the problem. In 2022, the cost of fraud came in at $4.20. Banks saw a more muted uptick from $4.36 to $4.40.
While they occurred at all stages of customer interaction, mortgage fraud coming through new account creation accounted for 43% of all losses, compared to 34% in 2022. Fraud attempts in the account login process made up a 31% share, and the funds-distribution stage 26%.
Perpetrators returned to old methods last year, as phone fraud spiked across businesses. Successful attempts made by telephone led to 28% of losses at mortgage lenders, accelerating from 11% a year earlier. Similarly, at banks the share rose to 26% from 12%.
“Nearly two-thirds (65%) of U.S. financial institutions ranked ‘phone calls’ as the channel fraudsters use most often to perpetrate scams,” according to the report.
Online fraudulent activity was tied to 29% of associated losses, up from 28%. At the same time, threats coming via mobile channels represented 20% of lost funds, down from 36% in 2022, “reflecting financial firms’ successful response,” according to Lexisnexis.
Despite the progress made in fraud detection and prevention, though, the surge in attempts illustrate how criminals are remaining a step ahead and pivoting strategies to find weaknesses at businesses. Declines in lending industry profits caused some businesses to reduce security spending, while new artificial-intelligence backed technology also could make the act of committing fraud easier.
Increased phone fraud activity coincided with a jump in incidents where the criminal assumed the identity of their victim. Known as synthetic-identity fraud, it led to a 36% share of losses during funds disbursement at mortgage lenders. Over two-thirds of mortgage companies also ranked it as one of the most common methods used by fraudsters during the customer communication stage.
International mortgage fraud also surged to a 46% share in 2023 from 16%, aligning with widespread challenges assessing risk by country or region and a lack of specialized prevention tools, according to the report.
Organized scams continue to contribute to widespread losses, in spite of efforts to educate consumers. Scam attempts were observed most frequently during account opening, 67% of mortgage lenders said.
Losses coming through organized scams involving mortgages represented 38% of the segment’s total, outpacing the banking rate of 32%. Overall, across North America, such scams accounted for 35% of fraud cost at all financial businesses, with six out of 10 institutions reporting increased scam attempts in 2023.
Mortgage lenders recognize the threats organized scams pose and implement measures to reduce risk more commonly today than they did a few years ago. Across mortgage businesses, an approximately 50% share of companies equally used consumer education, internal staff training and artificial intelligence modeling in their scam-prevention practices.
