Lender Profits Are Crashing Back To Earth

Updated: Mar 25

March 25, 2021

Federal Reserve chairman Jerome Powell and Treasury Secretary Janet Yellen answer questions from lawmakers about the monetary and fiscal response to the coronavirus pandemic.

herever there is commerce, there will be fraud, and the mortgage industry is no exception. In recent years, we have seen a significant uptick in fraudulent activity ranging from the high tech — intercepted wire transfers and electronic title phishing scams — to low-tech, such as applicants submitting falsified or doctored bank statements. The transition to a largely remote workforce during the COVID-19 pandemic only gave criminals more of an incentive to attempt to deceive lenders or misrepresent qualifications.

The full extent of fraud in the mortgage industry may be impossible to fully quantify, but the 2020 True Cost of Fraud study by LexisNexis Risk Solutions estimated that the cost of fraud has risen 7.3% across U.S. retailers and e-commerce merchants, and every $1 of fraud now costs $3.36, up from $3.13 in 2019. The COVID-19 pandemic, coupled with skyrocketing refinance applications due to a low interest rate environment, have created a perfect storm for fraud.

With e-signatures enabled for virtual closings, it has become more difficult for lenders to authenticate income and asset information, while the incentive to cheat is boosted by desperation or perceived opportunity.

Underwriters with hidden agendas

One emerging form of fraud we have seen plaguing our industry has nothing to do with the loan manufacturing process, but rather with the labor used to generate the loans.

Given the historic volatility of 2020 (driving loan demand) and the search for elusive industry experience, underwriters have become a prized catch. Companies are offering exorbitant salaries, benefits, signing bonuses and hefty referral bonuses; it’s no wonder everyone suddenly decided they could become an underwriter! However, the real prize, for some, was not the cash made by originating loans but rather the value of the private, personal information stored in companies’ systems

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