Cotality Says Mortgage Fraud Risk Rose 9.1% In Q2

Mortgage application fraud risk increased in the second quarter of 2026 as purchase lending regained momentum and higher mortgage rates kept refinance activity subdued, according to Cotality‘s National Mortgage Application Fraud Risk Index released Thursday.

The index rose to a reading of 132 in Q2 2026, up 9.1% from Q1 2026, which Cotality says equates to about one in every 119 mortgage applications showing signs of fraud risk.

Despite the quarterly increase, the index remained 4.6% below its level of 138 in Q2 2025.

The property data and analytics company said the increase was likely tied to elevated mortgage rates, which limited refinancing activity and shifted a greater share of mortgage demand toward purchase loans.

“The Q2 data is very interesting as the rate cuts everyone was hoping for didn’t materialize,” Matt Seguin, senior principal of mortgage fraud solutions at Cotality, said in a statement. “Purchase loans historically have higher fraud risk due to the opportunity to commit fraud when compared to refinances.”

Seguin said many government streamline refinance programs require less borrower documentation, such as income, asset and appraisal information, reducing opportunities for fraud. “Purchase loans are the opposite and generally require those docs, which leads to more opportunities for mortgage fraud,” he added.

Overall mortgage applications increased 5.2% from the first quarter, while purchase loans accounted for 72% of all applications, up from 59% in the prior quarter. Government loans also edged higher, representing 24% of total applications.

Investment and multifamily properties drive risk

Among fraud categories, undisclosed real estate posted the largest year-over-year increase, rising 2.6%. Cotality said undisclosed real estate can conceal additional debt, occupancy misrepresentation or prior credit events such as foreclosures, defaults or short sales. The company attributed the increase in part to more applications for investment properties, where such alerts historically occur about 2.5 times more often than for owner-occupied homes.

Cotality also reported higher levels of transaction, property and occupancy-related fraud alerts during the quarter.

Transaction-related alerts increased for borrowers purchasing homes in states where they had not previously lived and for properties priced significantly below the homes they had previously owned. Property-related alerts rose for homes that appeared to have been flipped within the previous 12 months, particularly in markets with higher foreclosure activity and rising home prices.

Occupancy-related alerts also climbed, including applications in which borrowers claimed to be first-time homebuyers despite evidence they already owned real estate, listed a nearby property as a second home, or claimed owner occupancy while already owning higher-valued homes.

Investment and multifamily properties continued to represent the highest-risk loan segments. Cotality estimated that one in 44 investment property applications and one in 27 multifamily applications showed indications of fraud risk during the second quarter, compared with the overall industry average of one in 119 applications.

Investment and multifamily loans accounted for 12% of total mortgage applications during the quarter, unchanged from the first quarter. Cotality said these loans have historically carried fraud risk levels at least three times higher than the average mortgage application.

The company said it plans to release its annual Mortgage Fraud Report in September.

This article was generated using HousingWire Automation and reviewed by a HousingWire editor before publication.