Cotality: Mortgage Application Fraud Risk Rises
(Thumbnail illustration: Artem Podrez via Pexels)
Cotality, Irvine, Calif., reported the risk of mortgage application fraud increased in the second quarter.
The data firm’s National Mortgage Application Fraud Risk index is now at 132 with an estimated 1 in 119 mortgage applications showing indications of fraud risk. The index increased 11 points or 9.1% from the first quarter of the year. However, it is down 4.6% year-over-year, when it reached 138 in second-quarter 2025.
“The increase may be driven by the current mortgage rates,” the report noted.
“The Q2 data is very interesting as the rate cuts everyone was hoping for didn’t materialize. As a result, our LoanSafe data showed a large jump in the purchase share of the market up to 72%. Purchase loans historically have higher fraud risk due to the opportunity to commit fraud when compared to refinances,” said Matt Seguin, senior principal with Cotality Mortgage Fraud Solutions.
Seguin said some of the government refinance streamline programs may not require income or asset and appraisal docs, therefore the opportunity to commit fraud is lower. “Purchase loans are the opposite and generally require those docs, which leads to more opportunities for mortgage fraud,” he said.
The largest year-over-year increase in the quarter remained the Undisclosed Real Estate category at 2.6%. Undisclosed Real Estate may also result in undisclosed debt, possible occupancy misrepresentation and/or derogatory credit events (foreclosure, notice-of-default, short sale, etc.) being hidden from the lender. This increase appears to continue to be driven by the increase in investment property applications. Historically these alerts are 2.5 times more likely to fire on an investment property versus an owner-occupied property. All other fraud risk categories continued to show an annual decrease year-over-year.
Overall applications increased 5.2% from the first quarter to the second. The purchase share jumped to 72% of transactions from 59% at the end of the first quarter. Government-backed loans slightly increased to 24% of applications.
Cotality observed increasing trends in the quarter on transaction, property and occupancy risk areas:
Transaction: An increase in alerts related to borrowers purchasing a property in a state they have never lived in, at a significantly lower value than their previously owned property.
Property: A jumps in alerts related to possible flipping of the subject property (prior sale within the past 12 months) in higher foreclosure markets that have rising home prices.
Occupancy: Increases in multiple alerts related to occupancy, including but not limited to the borrower claiming to be a first time homebuyer yet they appear to already own real estate; applications where the property is claimed to be a second home but is nearby the borrower’s primary home, and applications where owner occupancy is claimed yet the borrower already owns a home(s) of a higher value than the subject.
On a year-over-year basis, Cotality’s data continues to show the two highest risk categories are in the investment and multifamily space. The firm’s data estimate for the second quarter is that 1 in 44 investment applications and 1 in 27 multifamily applications have indications of fraud risk, compared to an overall average estimate of 1 in 119 for the industry as a whole.
This quarter, overall investment and multifamily volume remained flat from the first quarter at 12% of the overall applications. As noted above, these loans historically have elevated fraud risk, generally three times or more higher than the average application.
