An estimated one in 119 mortgage applications submitted during the second quarter had indications of fraud, according to the latest Cotality National Mortgage Application Fraud Risk Index report.
The index now has a reading of 132, up by 11 points or 9.1% from the first quarter of the year. However, it is also down 4.6% year-over-year, when it reached 138 in the second quarter of 2025.
The largest year-over-year increase in the second quarter was in the Undisclosed Real Estate category at 2.6%, which most likely were driven the increase in investment property applications.
Cotality highlighted an increase in alerts related to borrowers purchasing a property in a state they have never lived in, along with 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.
There were also increases in multiple alerts related to occupancy where the borrower claimed to be a first-time homebuyer yet appeared to already own real estate. Also rising were applications where the property is claimed to be a second home but was near the borrower’s primary home, and in applications where owner occupancy is claimed yet the borrower already owns property of a higher value than the subject.
Matt Seguin, Cotality Mortgage Fraud Solutions senior principal, stated, “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. 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.”
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