June 10, 2024
3 mins
How to Detect and Prevent Bank Statement Fraud Using Artificial Intelligence
Prudent AI

Back in 2007, in Atlanta’s west end, a mortgage fraud ring was exposed. Kevin G. Wiggins, a resident of Ellenwood, Georgia, got caught red-handed for orchestrating a swindle where he sold 80 homes in a deceitful way that ended up wrecking the whole neighborhood.

Imagine distressed properties scattered across the West End of Atlanta, each potentially worth a lot. With an audacity that matched his ambition, Wiggins aimed to buy over 80 of these homes, each valued between $24,000 and $80,000. But he had a plan that extended beyond mere property ownership. He turned to straw borrowers, unqualified individuals, some even his relatives, to facilitate his scheme. The properties were deeded to them before purchase, and using their names, Wiggins procured loans worth more than $15 million.

Wiggins's deception didn't stop there. Armed with false narratives, he inflated property values by as much as $100,000, weaving stories of extensive renovations and high-renting tenants. In this web of lies, Wiggins engaged appraiser Frank W. Astwood, who became complicit in his scheme by providing false appraisals, further boosting the illusory property values.

By the time “The Wiggin’s family” was exposed, the lenders had to deal with a $7 million in losses and the neighborhood had to face higher property taxes due to inflated property values. Kevin’s impact on falsely valued homes and burdened communities lingered for several years while he was in prison.  

Loan fraud is one of the biggest challenges for lenders, and it is only getting sophisticated every year. But, with newer technologies like AI (Artificial Intelligence), lenders can prevent another Wiggins story from happening. With AI getting smarter and data becoming more accessible, the situation has become favorable for lenders, making it even better at stopping fraud. In this blog, we'll explore how AI is changing the way we detect and prevent fraud in the mortgage industry.  

The Need for Artificial Intelligence in Detecting Bank Statement Fraud

Detecting bank statement fraud involves careful analysis of financial documents and applicant information. Traditionally, lenders and underwriters must go through multiple steps to verify an applicant's identity. But the challenge was, the process is highly manual, and fraudsters are getting more sophisticated with their methods. By embracing the power of Artificial Intelligence, lenders can swiftly identify bank statement fraud with better accuracy.  

According to industry experts, the adoption of AI is already transforming lending businesses in terms of ROI. Juniper's forecast predicts a whopping surge of 285% on AI-enabled financial fraud detection and prevention platforms. This surge is set to result in a massive global cost reduction of $10.4 billion by 2027, a substantial jump from the $2.7 billion recorded in 2022, which means that businesses are likely to save a lot more money by using AI-powered tools to fight fraud. Here’s an interesting viewpoint from the forecast:

“By leveraging AI, businesses can shift their fraud management resource to where it matters, investigating key issues, rather than dealing with endless false positives, boosting efficiency.”

Detecting Bank Statement Fraud using Artificial Intelligence

Among the crucial indicators of a suspicious mortgage application, several significant red flags demand attention. These indicators raise concerns and prompt a closer examination. The indicators are:

  • Inconsistent information
  • Quick property resales
  • Unusually high income
  • Large, unexplained deposits
  • Overstated assets
  • Unusual property ownership changes
  • Unrealistic property valuation
  • Missing or Altered documentation

Artificial Intelligence (AI) is playing a crucial role in detecting the above red flags because it can leverage its advanced data analysis capabilities and pattern recognition to identify unusual transactions using anomaly detection, create profiles of account holders for behavioral analysis, and learn from historical data using machine learning.  

Additionally, AI can verify the authenticity of documents, and integrate and analyze borrower financial information from various sources to predict potential fraud scenarios and reduce false positives.

Benefits of using Artificial Intelligence to Detect Fraud

Now, let's explore the benefits of utilizing AI in fraud detection.

  • Reduces manual work: An AI fraud detection system works 24/7 without much human intervention.  
  • More accurate: AI models can analyze vast amounts of data quickly and identify potential issues with better accuracy.  
  • Cost effective: An AI-powered fraud detection system is easy to scale and manage while keeping your operational costs in check.  

How Prudent AI is helping lenders identify bank statement fraud.  

Angel Oak, a leader in non-QM lending, saw transformative results with Prudent AI.  

Before partnering with Prudent AI, Angel Oak relied on a BPO vendor for bank statement analysis—a process that was not only cumbersome and time-consuming but also prone to errors. Not to mention instances where fraudulent loan applications passed several early checks and were only identified in the final stages of underwriting.  

Prudent AI’s built-in checks to look for rounding off errors, large deposits, and other discrepancies, helped Angel Oak identify and prevent several fraudulent bank statements from going into underwriting. This saved a lot of time for the underwriters. Through our partnership with Angel Oak Mortgage Solutions, we have shown the transformative potential of Al-powered solutions in detecting bank statement fraud. (You can read the full case study here.)

Protect Your Organization with Prudent AI

As technology continues to advance, harnessing the capabilities of Artificial Intelligence will be crucial in staying ahead of fraudsters. With Prudent AI, you can assess the overall credit risk of the applicant with our built-in risk meter, have multiple redundancy checks to prevent the reporting of false positives, detect instances of document tampering, and receive alerts for any missing documents. It’s fast, accurate, and easy-to-use.  

Transform your fraud detection capabilities and supercharge your lending processes today – schedule a demo.

Prudent AI
Step into the future
Talk to us to understand how you can automate your lending processing using Prudent AI.
UI interface of tools that calculates Prequalified Income in lending business Risk analysis in lending business
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.