Mortgage fraud risk ended the second quarter at its highest degree in over three years as points associated to undisclosed actual property debt and transaction misrepresentations had vital annual increases, in keeping with Cotality.
When in contrast with the primary quarter, the Cotality Mortgage Application Fraud Risk Index rose by 1.4%, whereas leaping by 6.1% in comparison with the second quarter of 2024.
On common one in every of each 116 mortgage purposes had indications of fraud within the second quarter, or 0.86%. Purchase purposes, which made up 70% of the marketplace for the interval, had a one in 106 charge; refinancings had a 1 in 142 charge, the Cotality 2025 Annual Fraud report mentioned.
Why fraud risk is on the rise
But buy had a a lot smaller improve in fraud risk, 5%, versus 22% annual progress for refinancings. Cotality attributed the distinction to progress in multifamily, cash-out and funding refi exercise.
“The improve within the fraud risk can partly be attributed to the volatility beginning to be seen in the true property market,” mentioned Matt Seguin, senior principal, fraud options, within the report. “Interest charge cuts have not come on the charge anticipated over the final yr, so buy transactions, which traditionally talking have increased fraud risk, proceed to signify virtually 70% of the purposes seen by Cotality.”
The Index ended the second quarter at 135.3, in contrast with 133.4 for the primary quarter and 127.5 for a similar interval final yr.
This is the very best the index has been at because the first quarter of 2022, when it was at 140.6.
The quantity of funding property mortgages rose 36%, whereas multifamily grew by 43%.
“Historically, and once more in 2025, these are the 2 highest fraud risk segments,” mentioned Josh Wilson, main fraud risk modeler, science and analytics. “They have pushed the National Fraud Index up 6.1% yr over yr.”
But the fraud risk associated to multifamily loans declined for the primary time since 2020, falling 2% in contrast with one yr in the past.
Investment property risk elevated 5%.
Why most varieties of fraud risk elevated yearly
Across all varieties of fraud, solely occupancy fraud risk declined, by 0.9% in contrast with the second quarter of 2024. This knowledge just isn’t indicative of the prevalence of every type of risk.
“There has been a number of information in 2025 about occupancy fraud and it is nonetheless one of many highest confirmed fraud classes in keeping with Fannie Mae printed knowledge,” Seguin mentioned.
Given that Cotality takes its knowledge from purposes, which is commonly a number one indicator of a change in risk, this drop is an efficient signal for the longer term.
“In this case, occupancy fraud risk, whereas nonetheless prevalent, appears to have leveled off and even begun dropping barely,” he continued.
But the expansion in undisclosed actual property debt and transaction fraud dangers are seemingly outcomes of the state of the present housing market normally.
Factors behind the 12% year-over-year rise are increased insurance coverage prices, softening house costs in some markets, elevated mortgage charges in contrast with the previous 5 years and the rising recognition of non-qualified mortgages, Cotality mentioned. It identified that fraud detection applications could lag these being pursued by standard lenders.
When it involves transaction fraud risk, whereas it declined 7.7% versus the primary quarter, it was nonetheless up 6.2% year-over-year. This follows a 4.9% annual improve within the second quarter of 2024 versus the identical interval in 2023.
“The rise is tied to debtors with a number of actual property purchases, transactions in areas with a excessive focus of personal lenders, and gross sales with a number of high-risk flags,” Cotality mentioned.
Income misrepresentation stays the main fraud discovering in Fannie Mae investigations, accounting for 46% of the instances via 2024, the report claimed. This risk rose 2.1% yearly.
Slowing worth progress contributed to a 6.3% quarter-to-quarter rise in property risk, though versus the second quarter final yr, it was just one.5% increased.
Identity fraud risk grew simply 0.4% this yr, after annual increases of 5.6% for 2024 and 12% for 2023.
