Thanks to tighter credit standards and increased regulation, reports of mortgage fraud dropped to historic lows following the financial crisis. Today, though, the rate appears to be increasing and criminals are trying new methods to defraud consumers. It's important that industry participants stay vigilant so we can work together to prevent scams. And for homebuyers, it's crucial to guard against a new type of fraud called spoofing.
It begins when scammers hack into the email accounts of real estate agents, attorneys or title companies – especially those who use unencrypted free email services like Yahoo Mail and Hotmail – to get a homebuyer's email address and upcoming closing details.
That's where the "spoofing" comes in.
The scammer sends the homebuyer an email with instructions for wiring the closing funds to his own bank account, which is often offshore. The email looks official so the would-be homebuyer follows the instructions without question, possibly losing tens of thousands of dollars plus the chance to buy a home. Because the funds have likely left the U.S. banking system, it's nearly impossible to trace or recover them.
The good news is that it's surprisingly easy to guard against spoofing scams.
In the midst of the closing process, it's not uncommon for closing times and details to change. However, homebuyers should be diligent. When they get an email telling them to click on a link, send personal information or wire money, they should look carefully at the email address itself to be absolutely sure it's correct.
When they get the email containing such instructions, they should pick up the phone and call the person they've been working with so they can verify that the information in the email is 100 percent accurate. They shouldn't use a phone number in the email because they'll be calling the criminals.
Consumers might even consider an old-school option: Going to their bank to get a cashier's check to bring to the closing rather than doing an electronic funds transfer.
At a broad level, consumers should know who they're doing business with. They can ask friends and family for recommendations, check online reviews and – most importantly – educate themselves about how the homebuying process is supposed to work.
Even if they've been working with a reputable party for some time, it's okay to find a new agent or attorney if there are red flags. For example, it's important to resist pressure to exaggerate personal information or lie on a mortgage application. And consumers should never sign mortgage applications or other financial documents unless all the blank spaces are filled in with correct information.
Freddie Mac is dedicated to fraud prevention. In fact, we established our Financial Fraud Investigation Unit (now known as Enterprise Fraud Risk) – which is responsible for the prevention, detection, investigation and resolution of fraud – in 1989, and we've continually worked to keep the industry informed about the types of schemes we see.
To learn more about mortgage fraud and how to report it, visit our new fraud risk homepage.
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