Member Article

How has the use of digital technology, as a result of the COVID-19 pandemic, contributed to the rise in fraud?

As a result of the COVID-19 pandemic, businesses experienced a rapid and significant increase in the use of digital technology. Bearing in mind health concerns, as well as business continuity, many businesses began to shift to widespread remote working environments. Not only were businesses managing their employees through a new digital landscape, but businesses also experienced a rapid shift in interacting with customers through the use of various technological mediums. As companies continued increasing their digital footprint, fraudsters began to develop and employ new opportunities to exploit digital vulnerabilities for illicit financial gain.

How did the mortgage industry adjust its business model as a result of the COVID-19 pandemic?

The mortgage industry also drastically increased its digital footprint during the COVID-19 pandemic. To accommodate customer demands, lenders began to increase online offerings to their customers. These offerings included online loan application processes, as well as online portal offerings to enable customers to easily access their accounts. Lenders also offered several mobile application offerings to their customers during this period. Despite efforts to combat fraud, the mortgage industry also experienced increased fraud attacks as a result of the increased use of technology.

What are examples of common fraud within the mortgage industry?

Historically, identification fraud has been a major issue in the mortgage industry. Unfortunately, identification fraud continued to increase during the COVID-19 pandemic, routinely exhibited through malicious boot attacks. However, fraudsters also were able to exploit the use of limited identification protocols by lenders by engaging in conspicuous “straw buyer” transactions. Generally speaking, a straw buyer purchases real estate on behalf of another person. The typical example of a straw buyer situation is where an individual with good credit secures a mortgage and purchases a home for another individual with poor credit. The act is considered fraud if the individual engages in the transaction on behalf of another individual who cannot legally make the purchase on his or her own. During the COVID-19 pandemic, straw buyer purchases likely increased as identification verification protocols became primarily digital, offering fraudsters an opportunity to exploit the vulnerability.

What are some measures business can take to mitigate costs of fraud?

For businesses, the most effective solution to mitigate the costs of such fraud and reduce the volume of successful attacks is to engage in a multi-layered solutions approach. Such an approach would consist of various identification solutions throughout the customer journey, incorporating technology, cybersecurity, and physical capabilities. For instance, while offering online loan application processes, lenders may also obtain physical documentary identification such as government-issued identification. Furthermore, lenders can initiate independent customer contact, and verify customer information through a third-party source such as a consumer reporting agency. Lenders may also acquire technology designed to limit automated approval of multiple applications in order to prevent such fraud. Altogether, businesses should be aware of and take appropriate measures to address the increased challenges of fraud in light of the COVID-19 pandemic, particularly those challenges associated with identification fraud.