Investment, Multifamily Loans Drove Mortgage Fraud Risk In Q4 2025

Cotality reported a slight increase in mortgage application fraud risk in the fourth quarter of 2025, driven largely by higher activity across the investment and multifamily lending spaces.

The company’s National Mortgage Application Fraud Risk Index, released Thursday, rose to a reading of 133 in the fourth quarter, up from the prior quarter and 1.5% higher than a year earlier. The data showed that approximately one in every 118 mortgage applications had indications of potential fraud, compared with one in 131 applications in Q4 2024.

Investment and multifamily loans remained the highest-risk categories, according to the data. An estimated one in 43 investment property applications and one in 27 multifamily applications showed signs of fraud risk during the quarter, well above the broader industry average.

“The percentage of refinances in the Cotality data set has increased year-over-year by 19%, yet the fraud index is up 1.5% over that time. This is significant because historically, refis bring a much lower risk of fraud than purchases,” Matt Seguin, senior principal for Cotality Mortgage Fraud Solutions, said in a statement.

“The two riskiest segments of the fraud index, investment properties (+34%) and multi-unit properties (50%), have jumped significantly over the last year as a portion of the overall application volume seen by Cotality. The increase in volume in these two segments has led to a slight increase in the Fraud Risk Index. This change seems to have been driven, at least partially, by the surge in popularity of the DSCR loans.”   

The real estate-related fraud risk category recorded the largest year-over-year increase in the fourth quarter, up 8.6%, which Cotality attributed to increased investment property activity. Over the past three months, non-owner-occupied properties triggered undisclosed real estate alerts at more than 2.5 times the rate of owner-occupied homes, the company said. Such risks can include undisclosed debt, misrepresentation of occupancy or adverse credit events not identified during underwriting.

Other fraud risk categories declined from a year earlier, although Cotality reported rising trends in several predictive alert areas during the quarter — including income, property and occupancy. Income-related alerts increased where employer information could not be verified by phone or address.

Property alerts, meanwhile, rose in cases involving potential home flips and sharply increased valuations following ownership transfers within the past two years. And occupancy alerts increased where borrower occupancy disclosures appeared inconsistent with ownership records or tax mailing addresses.

Overall mortgage application volume declined by less than 1% from Q3 2025 to Q4 2025. Purchase loans accounted for 62% of applications, continuing a downward trend, while government-backed loans held steady at 24% of total volume.