National Overview
The Cotality Mortgage Application Fraud Risk Index was 132 for Q2 2026, which decreased 4.6% year-over-year and increased 9.1% since last quarter. The Index has fluctuated a bit over the last year, ranging from 121-138. This was driven by a push and pull between several factors, as rates have risen and fallen over the year. Generally speaking, when the rates were on the lower end, fraud risk dropped, however, there have been some pushes against that norm with the increase in investment property and 2-4 unit applications which are historically the two riskiest segments of the index.
Mortgage Application Fraud Risk Index
Down 4.6% in Q2 2026
compared to Q2 2025
1 in 119
Mortgage applications
estimated to have indications of fraud in Q2 2026
1 in 110
Purchase applications
estimated to have indications of fraud in Q2 2026
1 in 139
Refinance applications
estimated to have indications of fraud in Q2 2026
In Q2 2026, an estimated 0.84% of all mortgage applications contained fraud risk, about 1 in 119 applications, compared with 0.86%, or about 1 in 116 applications in Q2 2025.
The 2- to 4- unit segment continues to show the highest risk, with an estimated 1 in 27 transactions estimated to have indications of fraud risk. The number of 2- to 4- unit applications increased 82% year-over year (compared to an overall application increase of 21%). 2- to 4- unit refinance risk decreased approximately 2.5%.
The lowest-risk applications are VA-backed programs, which is consistent with prior years.
State-Level Highlights
New York and Florida hold the top two positions for mortgage application fraud risk. New York has been in the top two for the past five years and Florida has held a spot in the top for three of the past four years. Rounding out the top five in 2026 are Rhode Island, California and Connecticut. The top five remained the same as last year, with Florida and Rhode Island flipping spots to 2nd and 3rd respectively. As noted last year, the smaller size of Rhode Island plays a factor in their jump towards the top of the list as a smaller number of applications can have a bigger influence on the risk percentages.
- New York: Top position is influenced by an 8% increase in income risk and a 3% increase in undisclosed real estate debt. Other tracked fraud risk categories (occupancy, identity, property and transaction) all showed an annual decrease, which resulted in a 3.5% overall decrease in fraud risk year over year. Even with that decrease, it still maintained its position as the state with the highest fraud risk by a significant margin.
- Florida: Transaction risk increased 8.7% over the last year, with the overall state risk decreasing approximately 4%.
- Rhode Island: Occupancy fraud risk increased 114.2% and income risk increased 4% over the last year, with the overall state risk decreasing approximately 10% in the last year. The state's smaller size leads to the larger increases shown.
- California: Undisclosed real estate debt risk increased 2.6% and transaction risk increased 0.4% year over year. Overall risk for the state was down approximately 5.5% year over year.
- Connecticut: Overall risk decreased by less than 1% risk year over year but maintained its spot in the top five. The risk level is impacted by undisclosed real estate debt risk increasing 15.8% and income risk increasing 2.9% year over year.
- Nationwide, undisclosed real estate debt showed the greatest risk increase at 2.6%. All other tracked categories showed an annual decrease year over year: Income: -3.5%, Occupancy -5.8%, Identity -10.9%, Property -6.5% and Transaction -4.1%.
National Fraud Trends: Risk Overview
Relatively higher interest rates continued to keep volumes in check. However, Q2 2026 saw just under a 22% increase in applications from Q2 2025. The refinance share in Cotality’s consortium had risen through Q1 2026 but dropped precipitously in Q2 2026 to just 28% of overall applications, ranging between 28% and 40% over the last six quarters.
To analyze the national index, we trend the risk levels and volumes of distinguishing loan segments. Year over year, the overall index increased and there were interesting changes within the various Fraud Risk categories.
- Purchase transactions as a share of overall volume increased from 70.9% in Q2 2025 to 72% in Q2 2026, but at certain points in the last year, purchase volume dropped to as low as 59.5%. Purchase segments continue to show higher risk than refinances. While refinance fraud risk was essentially flat year over year, purchase fraud risk decreased 5.5% compared to Q2 last year.
- The multifamily segment continues to have the highest fraud risk, even as risk dropped approximately 2.5% over the year. While small, the decline is notable as it’s the second consecutive year over year decrease seen in this category.
- Segments with increasing risk included refinances (+2%), investment properties (+3%) and FHA (+1%). There were decreases in jumbo (-3%), multifamily (-2.5%), VA (-19%) and purchase (-4%).
Purchase / Refi Split
National fraud index over time
Fraud Types
Note: Cotality’s Fraud Type trending measures changes in the risk indicator frequencies for each category. It is not representative of the prevalence of the category. One of the best sources for information on the incidence of various fraud types is Fannie Mae’s Mortgage Fraud Prevention website.
The only increase year over year was in undisclosed real estate debt fraud risk, and it was a nominal increase (up 2.6%) compared to last year (up 12%).
Undisclosed real estate can occur for a multitude of reasons - hiding debt to boost DTI, avoiding disclosure of derogatory credit events such as foreclosure, short sale and notice of default to occupancy misrepresentation on simultaneous transactions.
Research has shown the alerts related to undisclosed real estate debt are 2.5 times more likely to fire on an investment property versus an owner-occupied property. As investment property applications have continued to become a larger share of the transactions over the last few years, this appears to be a driving force in this category increase. What’s driving the increase is hard to determine, but to some extent it appears to be driven by the increase in the non-agency space - particularly DSCR - the popularity of short-term rentals, fix and flip type TV shows and social media postings that promote the advantages of being a landlord.
Cotality is closely watching what will happen to the real estate market and particularly the investor properties after the recent passage of the 21st Century ROAD to Housing ACT limiting the entities owning 350 or more single family homes. Will there be a material change in the percentage of investor versus owner-occupied or will those properties get swallowed up by smaller investors? It’s possible it could have a positive impact on mortgage fraud based on the historical precedent of a higher fraud risk in the investment space.
Transaction fraud risk indicators decreased 4.1 % this year, compared to a 6.2% increase last year. Several decreases among specific alerts were seen in the transaction risk category, with less cases of multiple active liens taken out on a subject property within 45 days of each other, and less cases of flipping concerns on a subject property. There were increases of some specific alerts within this category, most notably borrowers purchasing properties in states where they have not lived before and the property is valued significantly less than the real estate they currently own - which could be a red flag for a straw buyer.
Property risk showed a decrease of 6.5% compared to a 1.5% increase last year. This aligns with property values stabilizing nationwide - and starting to build some momentum in some cases.
Income risk decreased by 3.5% year over year. Income misrepresentation continues to remain Fannie Mae’s top fraud finding at 46% of investigative findings for 2025 data set at the time of this report’s publication and remains a top concern for lenders. Lenders have made strides post-pandemic with the rise in available tools that directly validate income with payroll providers or 3rd party services, along with the verification of IRS transcripts. AI is posing a new challenge in identifying altered income docs compared to old tactics such as whiting out numbers on a paycheck stub.
Occupancy risk decreased 5.8% compared to a year ago, continuing the decrease we mentioned in our 2025 Annual Fraud Report. Cotality’s data is based on applications, which sometimes may conflict with the current fraud news as most of that fraud is often identified post funding - sometimes months or even years after a court case has gone public.
Occupancy fraud has dominated the headlines nationally, with some high-profile accusations, even as Cotality’s data suggests occupancy fraud risk has plateaued. It is still one of the top identified instances of mortgage fraud by Fannie Mae, at 25% of their fraud investigative findings in their 2025 vintage loans. The decrease in occupancy fraud risk may be tied to increased interest rates over the past few years, as the spread between rates for investor versus owner occupied homes is not large enough to make the risk worthwhile. The most common occupancy fraud is that of an investor claiming primary occupancy on a subject property.
Identity fraud risk indicators decreased 10.9% after increasing 0.4% last year. While there are concerns over synthetic identity fraud, it doesn’t appear to be a concern or major risk for mortgage lenders at this time, based on Cotality data and Fannie Mae’s last five years of reported fraud trends.
Emerging risks and industry observations
Non-agency
Mortgage fraud continues to evolve. This year saw continued volume growth in the non-agency space, particularly DSCR. That segment seems to have become much more focused on mortgage fraud prevention. From a very public case of mortgage/real estate fraud in the Baltimore area to the National Private Lenders Association (NPLA) launching a watchlist, mortgage fraud is top of mind for this group. Based on Cotality’s data, the highest risk of mortgage fraud lies in the investment and 2- 4- unit space, making the concern warranted within the non-agency world.
AI
AI continues to be a hot topic in the industry. Many lenders are reporting great strides with AI, but many unknowns remain. In the last year, the GSEs released a governance framework for the use of AI and Machine Learning that lenders must take into account. From a mortgage fraud detection standpoint, there are AI tools available, however their true value and consistency is not yet known in most cases. Existing tools, including Cotality’s own LoanSafe fraud solution, which has used machine learning for over 15 years, have continued to evolve over the years to combat these emerging threats.
Documents altered with AI continue to be a real challenge for lenders. One solution is to look for patterns in the data as it’s not easy to spot certain issues on a loan-by-loan basis. Whether those patterns are a high percentage of self-employed borrowers, a common tax preparer or consistent even numbered income among a subset of loans, these are the red flags that can indicate possible fraud. As Fannie Mae announced in their partnership last year with Palantir, the value of looking for the patterns in the data can be a very strong indicator of when something is not right. With all the technological advancements made in AI and Machine Learning over the past few years, it’s still valuable to have a human element analyzing the riskiest loans.
Wire / BEC fraud
Clients are asking more questions around wire and BEC fraud. FINCEN SAR data shows why - wire fraud has been a rising topic for SAR filings through the end of Q2. Based on those stats,* wire fraud SAR filings have almost met the total 2025 filings by the end of June 2026, putting them on pace to roughly double year over year. Cotality had a discussion with Andrew Liput, founder of Secure Insight, in April 2026 about this topic.
*Filtered years of 2024-2026, industry=Depository Institution, GSE and Loan or Finance Company and Suspicious Activity category "Wire"
The stretched consumer
Mortgage delinquency and foreclosures have been increasing recently. Economic uncertainty appears to be top of mind - whether it’s concerns over AI possibly making their jobs obsolete, geopolitical tensions or higher interest rates and rising inflation. Borrowers that cannot qualify from a DTI perspective offer an opportunity for fraudsters.
Policy and regulatory changes
There have been many policy and regulatory changes over the last year, but we are focusing on two major ones in this report. First, the FHFA directed the GSEs to start accepting the VantageScore 4.0 model and the future use of FICO Score 10T. More recently, the 21st Century ROAD to Housing Act placed limitations on the number of properties that can be owned by an institutional investor. As with many changes it may take months or years to see whether some of these changes have unintended impacts in the mortgage fraud space.
Highest fraud risk: Top 25 metro areas
Top 10 states with the highest fraud risk
Data sources
The Cotality Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. Cotality develops the index based on residential mortgage loan applications processed by Cotality LoanSafe Fraud Manager™, 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.
