Mortgage fraud risk rises due to high mortgage rates

Cotality National Mortgage Fraud Application Risk Index shows risk is at 132 for Q2 2026.  

• An estimated 1 in 119 mortgage applications had indications of fraud.
• Purchase loans increased to 72% of overall volume, driving up the fraud risk.
• Undisclosed real estate fraud risk increased the most due to investment properties loan applications.

IRVINE, Calif., August 4, 2026 - Cotality, a leading global property information, analytics, and data-enabled solutions provider, released the Cotality National Mortgage Application Fraud Risk(Index) for the second quarter of 2026. The 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 Q2 2025. The increase may be driven by the current mortgage rates.

"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, Cotality Mortgage Fraud Solutions senior principal. "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 documents, which leads to more opportunities for mortgage fraud."

The largest year-over-year increase in Q2 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 Q1 '26 to Q2 '26.Purchase share jumped to 72% of transactions from 59% at the end of Q1. Government-backed loans slightly increased to 24% of applications.

We analyzed our most predictive alerts and observed increasing trends in Q2 on transaction, property and occupancy risk areas.

Transaction: 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: 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 2^nd 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.

Year-over-year, Cotality's data continues to show the two highest risk categories are in the investment and multi-family space. Cotality's data estimate for Q2 '26 is in 1 in 44 investment applications and 1in 27 multi-family 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 multi-family volume remained flat from Q1 '26 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.

Cotality's annual Mortgage Fraud Report will be released in September 2026. For more on mortgage fraud, and ongoing housing trends and data, visit the Cotality Insights blog. 

METHODOLOGY 

The Cotality National Mortgage Application Fraud Risk Index analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. CoreLogic develops the index based on residential mortgage loan applications processed by Cotality LoanSafe FraudManager^™, a predictive scoring technology. The report includes detailed data for six fraud type indicators that complement the national index: identity, income, occupancy, property, transaction, and undisclosed real estate debt. 

About Cotality 

Cotality accelerates data, insights, and workflows across the property ecosystem to enable industry professionals to surpass their ambitions and impact society. With billions of real-time data signals across the life cycle of a property, we unearth hidden risks and transformative opportunities for agents, lenders, carriers, and innovators. Get to know us at www.cotality.com.  

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