How to Break the Wire Fraud Cycle During a Recession

Learn about the wire fraud risks that real estate professionals need to be aware of during a recession and how to mitigate them.

How to Break the Wire Fraud Cycle During a Recession

Learn about the wire fraud risks that real estate professionals need to be aware of during a recession and how to mitigate them.

Written by:

Tyler Adams

Read time:

5 minutes

Category:

Cybercrime

Date:

Nov 2, 2022

If you’re Gen Z or older, you’ve already had to weather at least one economic downtown during your lifetime. The most recent downturn was so pronounced that it was named the Great Recession. 

The encouraging news is that The Economist projects the slump in housing prices will not cause an epic financial crisis like in 2008. The US has fewer risky loans and better-capitalized banks than in the last cycle. 

Economic boom-and-bust cycles will continue into the future. However, what does not have to continue is the current cycle of fraud that title companies are experiencing today. 

As Tom Cronkright discussed at the ALTA ONE conference, our industry is currently seen as “good for business” by cybercrime rings. You might feel like you’re just one human error away from wire fraud that could wipe out your company. Without the right technologies to proactively address the threat, your business is in a continual whack-a-mole against not just one bad actor, but an army of them. 

Here are seven reasons why it’s so important to break the cycle:

1. Fraud in the real estate industry isn't slowing down.

Despite a slower real estate market, industry experts are noticing an overall increase in several types of fraudulent activity. Income and property fraud have risen more than 20 percent year over year

When it comes to wire fraud specifically, one recent American Land Title Association (ALTA) study of title and settlement companies confirmed that 86 percent of respondents saw cyberattacks—including fraud attempts—increase or remain the same in the last year.

A real estate business is now under more pressure than ever to become secure across many types of cybercrimes. You simply cannot stay ahead of all these threats without a robust strategy involving people, processes, technology, and culture.

2. Higher interest rates are increasing the amount of cash in real estate deals.

Due to higher interest rates, more buyers are deciding to pay with cash upfront rather than using loans. That means more cash is flowing through wire transfers to facilitate the home-buying process. In fact, nearly one-third (31.4 percent) of US home purchases included all-cash offers in July 2022, which is near an eight-year high and a 27.5 percent increase from 2021.

Unfortunately, cybercriminals are also noticing these trends, using techniques like business email compromise (BEC) to wait for high-dollar transactions they can manipulate for a big payday.

3. Lower transaction volume means each transaction is riskier.

With fewer transactions happening overall, the risk associated with each wire transfer has increased on a couple of fronts. 

When there are fewer transactions for fraudsters to target, the probability of your transaction getting hit goes up. And because more buyers are paying cash due to higher interest rates, the value of funds at risk in your transactions has grown as well.

With less deal flow, a single instance of wire fraud will be far more devastating to your business than it would have been during times of higher volume. The simple yet sobering math is that a wire fraud loss of $200,000 matters more when your business is transacting $1 million a week in mortgage payoffs, versus a year ago when it was more like $1.5 million a week. 

Lower top-line revenue means a higher risk profile of the impact of wire fraud, meaning there is more balance sheet risk than ever for your business. The take-out risk to your company from wire fraud has never been higher.

4. Just one case of wire fraud can devastate your clients. 

On average, it takes a buyer at least four years to save up enough money for a down payment on a home. Conversely, a criminal only needs a few days to pull off fraud that leaves your buyers financially devastated. 

And with only 17 percent of fraud victims able to recover all of their diverted funds, the real estate companies involved in the fraudulent transaction could be left sharing the liability, often without the insurance needed to protect their financial health.

5. Security has become table stakes for a title company.

Educating your clients about the risks of wire fraud is always a best practice. This helps you ensure an informed client and a smooth transaction. This becomes even more important during an economic recession, when a funds wire holds even more importance—not only for your client to amass the funds in the first place, but also to make that investment in an economically uncertain time.

What’s more: What’s the alternative to your business if you don’t invest? The reputational damage of a fraud incident could impact your referral business. With real estate markets cooling from coast to coast, every referral matters.  

With concerns about security and privacy at an all-time high among consumers, focus on upgrading your cybersecurity controls and tools to stop wire fraud attempts in their tracks. In addition to reducing your liability, these upgrades give your customers the peace of mind that you are doing what is necessary to keep their identities, money, and investments safe against rapidly evolving threats.

6. A recession makes operational excellence even more critical.

Operational efficiency will determine how well your business makes it through the recession. But it’s not just about slashing expenses. Evaluate areas of your business in which you are still operating manual, time-consuming processes rather than taking advantage of the right technologies. 

Relying on manpower-based processes means your business model will be challenged to flex down during low volume times and makes it harder to flex up when the cycle picks back up. Investing in the right technologies can keep your operating costs low today, and enable cost-effective scale in the future.  

When it comes to wire fraud protection specifically, the key is to evaluate whether your historical processes are mitigating your risks effectively. Manual inspection and detection of a swapped letter or number across countless communications will be prone to human error. This approach is ineffective not only in terms of operating costs, but also in actually reducing your projected cost of claims.  

Wire fraud protection also offers the opportunity to improve revenue per transaction. Your clients expect their transactions to be secure, and also understand that security comes at some cost. The overall right combination of expertise, services, and solutions—including security—should be considered in your overall pricing structure. What’s the alternative? Lack of security, leaving you and your clients at risk of catastrophic loss with every wire you make. 

7. Be ready for the next growth cycle.

Now is the time to invest in capabilities that will prepare you for when interest rates go back down and the economy rebounds. 

None of us relish a downturn, but you can take advantage of this slower time to strengthen your business financially and operationally. For a title company, that includes taking steps to strengthen your defenses so that you become harder to attack. Wire fraud is unlikely to go away before the next boom unless we make our industry a less attractive business opportunity for cybercriminals. That can only happen one business at a time, starting with yours.

Take your wire fraud protection to the next level.

During a recession, home buyers and sellers need the guidance of title and real estate professionals more than ever, especially given the growing risks and probability of wire fraud. 

Fortunately, as the industry increases its understanding of the sources of risk, you have more tools than ever to get secure. From platforms that perform identity verification and secure the sharing of financial and wiring information to insurance, fraud recovery assistance, and cybersecurity educational resources, you have many ways to invest in your business and ensure the peace of mind your clients deserve. 

Ready to take the next step? Contact us today.

Tyler Adams

Co-founder & CEO

Tyler brings a decade of leadership experience developing and launching technology businesses. Before co-founding CertifID, Tyler led new product development at BCG Digital Ventures for Mercedes-Benz, First American Financial, Boston Scientific, and Aflac.

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