National Overview
The Cotality Mortgage Application Fraud Risk Index increased 6.1% nationally year over year and 1.4% from Q1 to Q2 2025. The Index has been gradually rising over the last year as the mortgage market remains dominated by purchases. Data also shows notable increases in volume in the two riskiest segments of the index: investment properties and multi-unit properties.
Mortgage application fraud risk index
Up 6.1% in Q2 2025
compared to Q2 2024
1 in 116
Mortgage applications
estimated to have indications of fraud in Q2 2025
1 in 106
Purchase applications
estimated to have indications of fraud in Q2 2025
1 in 142
Refinance applications
estimated to have indications of fraud in Q2 2025
In Q2 2025, an estimated 0.86% of all mortgage applications contained fraud risk, or about 1 in 116 applications, compared with 0.81% (1 in 123)in Q2 2024.
The 2- to 4-unit segment continues to have the highest risk, with about 1 in 27 transactions showing indications of fraud risk. These applications increased in volume 43% year over year, while the 2- to 4-unit application risk declined 2%.
VA-backed applications remain the lowest-risk category, consistent with prior years.
State-Level Highlights
New York and Rhode Island hold the top two positions for mortgage application fraud risk. New York has remained in the top two for the past four years, while Rhode Island is new to the top tier, pushing Florida to third. Rhode Island’s smaller market size magnifies changes in application volume, which can disproportionately influence risk levels. Rounding out the top five are California and Connecticut.
- New York: Top ranking driven by a 57% increase in undisclosed real estate debt risk, a 30% increase in transaction risk, and a 21% increase in occupancy risk. Overall risk rose 11.5% year over year.
- Rhode Island: Undisclosed real estate debt risk increased 27.1%, with overall risk up 23.5%.
- Florida: Property risk rose 24.6% and undisclosed real estate debt risk increased 9.3%, pushing overall risk up 16%.
- California: Undisclosed real estate debt risk increased 20.7% and property risk rose 11.8%. Overall state risk declined slightly, down less than 1%.
- Connecticut: Overall risk decreased 3.1%, but undisclosed real estate debt risk rose 25.4% and occupancy risk increased 22.3%.
- Nationwide, undisclosed real estate debt showed the largest annual increase at 12%,followed by transaction fraud risk, up 6.2%.
National Fraud Trends
Relatively high interest rates have kept application volumes in check. Still, Q2 2025 saw a 22% increase in applications from Q1, likely reflecting seasonal patterns. The refinance share in Cotality’s consortium has risen over the past year, ranging from 25% to 32% over the last six quarters.
- Purchase transactions fell from 74% of overall volume in Q2 2024 to 70.9% in Q2 2025. Purchase transactions still carry higher risk than refinances, but refinance fraud risk rose 22% year over year compared with a 5% increase for purchases. This refinance spike was tied to riskier loan types such as multifamily, cash-out, and investment refinances.
- Multifamily loans remain the highest-risk segment, though their risk dropped 2% year over year. This is the first decline since 2020.
- Risk increased in refinances (22%), investment properties (18%), and purchases (5%). It declined in jumbo loans (7%), multifamily loans (2%), and VA loans (2%). FHA loans remained flat.
Purchase / Refi Split
National Fraud Index Over Time
Fraud Types
Note: Cotality’s fraud type trending measures changes in the frequency of risk indicators for each category. It does not represent the prevalence of each category. One of the best sources for information on the incidence of various fraud types is Fannie Mae’s Mortgage Fraud Prevention website.
The largest year-over-year increases were in undisclosed real estate debt and transaction fraud risk.
Undisclosed real estate debt rose 12% this year, compared with a 5.9% decline year over year in 2024. Motivations for concealing real estate debt vary and can include hiding debt to improve a debt-to-income ratio, failing to disclose derogatory credit events such as foreclosure, short sales, and notices of default, or undisclosed simultaneous transactions.
Cotality believes several industry wide factors may also be contributing to the increase. These include higher insurance costs, softening home prices in some markets (as noted in U.S. Home Price Insights, July 2025), mortgage rates that remain high compared with the past five years, and the growing popularity of non-QM loans, where fraud detection programs may lag.
Transaction fraud risk increased 6.2% this year, following a 4.9% increase last year. The rise is tied to borrowers with multiple real estate purchases, transactions in areas with a high concentration of private lenders, and sales with multiple high-risk flags. Transaction elements most likely to be misrepresented include the down payment, property use, and non-arm’s-length relationships. From Q1 2025 to Q2 2025, this risk declined 7.7%.
Property risk rose 1.5% year over year. The slowdown in home price growth in some markets is reflected in a 6.3% increase from Q1 2025 to Q2 2025 in this category.
Income risk increased 2.1% year over year. Income misrepresentation remains the most common fraud finding in Fannie Mae investigations, accounting for 46% of cases through 2024, and it continues to be a top concern for lenders.
Occupancy risk decreased 0.9% in Q2 2025 compared with the prior year. It appears to have plateaued in 2024 and is beginning to decline slightly in 2025. This aligns with last year’s report on occupancy fraud risk. However, Fannie Mae’s most recent fraud reporting (August 2025) shows that occupancy risk has been increasing and was the second most common issue for 2024 vintage loans. Occupancy accounted for 10% of findings in 2020 but 29% in 2024. The most common occupancy fraud involves an investor claiming primary residence status for a subject property.
Identity fraud risk increased 0.4% year over year, compared with large increases of 5.6% in 2024 and 12% in 2023. This stabilization aligns with the infrequent reporting of identity fraud by consortium members and its rarity in Fannie Mae fraud trend reporting.
Emerging Risks and Industry Observations
In last year’s report, we discussed the potential impact of generative AI on mortgage fraud. While generative AI use remains uncertain, in May 2025 Fannie Mae and Palantir announced a partnership to detect mortgage fraud using AI. The topic of mortgage fraud has become more prominent in news coverage this year than in the past 15 years.
Factors influencing fraud risk include:
- Natural disasters: Increasing frequency and impact, contributing to rising homeowners insurance costs.
- Economic pressures: Housing affordability challenges from inflation, high interest rates, rising credit card debt, and higher property taxes.
- Real estate market shifts: Negative home price trends in some markets may incentivize fraud.
- Non-QM loan growth: Program variations and inconsistent controls could open new opportunities for fraud.
Lenders report increases in questionable applications from self-employed borrowers with implausible depreciation claims, as well as cases where borrowers are newly listed as company owners but have two years of business tax returns. Wire fraud and business email compromise are also rising concerns.
Automation in underwriting brings efficiency but may reduce opportunities for underwriters to detect anomalies. Combining technology with human review remains critical for combating fraud.
Top 25 Metro Areas with the Highest Fraud Risk
Top 5 States, Year-Over-Year Fraud Risk, % Change
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®, 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.
