Elevated Mortgage Rates Fueling Nationwide Fraud Risk
The Cotality National Mortgage Application Fraud Risk (Index) for Q2 of 2026 has been announced. With an estimated 1 in 119 mortgage applications exhibiting signs of fraud risk, the index is currently at 132. Compared to Q1 of the year, the index rose by 11 points, or 9.1%. However, compared to Q2 2025, when it was 138, it is down 4.6% year-over-year. The present mortgage rates could be the cause of the increase.
Key Findings:
- 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.
“The Q2 data is very interesting as the rate cuts everyone was hoping for didn’t materialize,” said Matt Seguin, Mortgage Fraud Solutions Senior Principal at Cotality. “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.”
At an estimated 2.6%, the Undisclosed Real Estate category continued to have the biggest year-over-year rise in Q2. Additionally, unreported debt, potential occupancy misrepresentation, and/or negative credit events (foreclosure, notice-of-default, short sale, etc.) may be concealed from the lender as a result of unlisted real estate. The rise in applications for investment properties seems to be the main cause of this surge. In the past, the likelihood of these alerts going off on an investment property is 2.5 times higher than that of an owner-occupied property. Every other category of fraud risk showed a yearly decline from year to year.
Between Q1 and Q2 of 2026, the total number of applications climbed by 5.2%.Purchase share increased from 59% at the end of Q1 to 72% of transactions. The percentage of applicants for government-backed loans rose little to 24%. Transaction, property, and occupancy risk categories showed rising trends in Q2, according to an analysis of the most predictive warnings in the report.
- Transaction: A rise in alerts about debtors buying a property at a substantially cheaper price than their prior property in a state they have never lived in.
- Property: In greater foreclosure markets with growing home prices, there are jumps in alerts regarding potential flipping of the subject property (previous sale within the last 12 months).
- Occupancy: Increases in several occupancy-related alerts, such as when a borrower claims to be a first-time homebuyer but appears to already own real estate; when the property is claimed to be a second home but is close to the borrower’s primary home; and when owner occupancy is claimed but the borrower already owns a home or homes of a higher value than the subject.
Cotality’s research consistently demonstrates that the investment and multi-family sectors are the two most risky. According to Cotality’s data estimate for Q2’26, there are indications of fraud risk in 1 in 44 investment applications and 1 in 27 multi-family applications, whereas the sector as a whole has an average estimate of 1 in 119.
At 12% of all applications, overall investment and multi-family volume was unchanged from Q1’26. As previously mentioned, the fraud risk associated with these loans is typically three times or higher than that of the typical application.
Cotality’s annual Mortgage Fraud Report will be released in September 2026.
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