Report: Fraud Costs, Frequency Remain Significantly Higher than Pre-pandemic for Mortgage Lenders
January 12, 2022
Digital transformation was already well underway when the pandemic hit, but there’s no denying that COVID-19 greatly accelerated the trend. In doing so, it fundamentally changed how people interact with businesses in a very short time.
Consumers, even those who were less tech-savvy, rapidly migrated to online and mobile channels. Unfortunately, so did fraudsters. And they did so with fervor, continually testing and refining their methods, seeking out new vulnerabilities to exploit.
In particular, financial services and lending companies became a frequent target. According to the latest report from LexisNexis Risk Solutions, the cost of fraud for U.S. financial services and lending firms is between 6.7% and 9.9% higher than before the pandemic. This is driven by mortgage lending (up 23.5% since pre-COVID-19) and a continued upward trend among banks (+13.0%). Fraud costs and attack volumes remain significantly higher compared to before the COVID-19 pandemic.
The report found that for every $1 of fraud loss, the total cost for a mortgage lender is $4.40. Fraud losses are occurring across the customer journey, though the point of funds distribution is seen as most susceptible for fraud by many, according to the report.
"With the accelerated movement to online/mobile transactions and payments, financial services and lending firms must continue to build out and enhance the digital customer experience while protecting against fraud," said Christopher Schnieper, director of fraud and identity at LexisNexis Risk Solutions, in a press release.
The overall number of attacks aimed at mortgage lenders continue to outpace pre-COVID activity. In 2021, monthly fraud attempts reported by mortgage lenders averaged 1,431, with 536 of them successful, up from 1,211 and 686 in pre-COVID 2020 and 1,280 and 460 in 2019. But last year’s averages declined from pandemic-impacted 2020, which saw a monthly average of 1,887 attacks with almost half of those, 923, successful.
The increased use of online tools and devices in the last two years has led to much of the spike in fraud activity at mortgage banks. Business conducted through mobile devices grew to 29% of total volume at mortgage lenders and 27% at banks in 2021, up from 16% for both the previous year. Online transactions also have risen since the start of the pandemic, accounting for 30% of all transactions at mortgage lenders and 31% for banks, up from 23% and 19% in 2020.
"With the accelerated movement to online/mobile transactions and payments, financial services and lending firms must continue to build out and enhance the digital customer experience while protecting against fraud," said Christopher Schnieper, director of fraud and identity at LexisNexis Risk Solutions.
The LexisNexis report said identity verification via devices, email and phone numbers is a challenge that financial companies need to address to limit fraud. Identity fraud is a cause of a significant percentage of losses at the point-of-funds distribution, as well as during new account openings. Mortgage lenders and banks both also indicated that verification of malicious bots and transaction origins posed major obstacles their businesses struggled to deal with when combating fraud.
"Fraud prevention must assess both physical and digital identity attributes as well as the risk of the transaction,” Schnieper said. “It is difficult for even the best trained professional to detect the increasingly sophisticated crime occurring in the remote digital channels without the aid of solutions that detect digital behaviors, anomalies, device risk and synthetic identities."
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