Mortgage Fraud Risk Rose 9.1% in Q2, Says Cotality

Mortgage application fraud risk increased by 9.1% in the second quarter of 2026, according to Cotality's National Mortgage Application Fraud Risk Index. The index reached a reading of 132 in Q2 2026, indicating that approximately one in every 119 mortgage applications exhibited signs of fraud risk. This quarterly rise, however, still left the index 4.6% below its level of 138 recorded in Q2 2025. Cotality, a company specializing in property data and analytics, attributed this increase primarily to elevated mortgage rates. These higher rates reportedly limited refinancing activities, consequently shifting a greater proportion of mortgage demand towards purchase loans. Matt Seguin, senior principal of mortgage fraud solutions at Cotality, noted in a statement that the Q2 data was particularly interesting because the anticipated rate cuts did not materialize. He further explained that purchase loans inherently carry a higher fraud risk compared to refinances, largely due to increased opportunities for fraudulent activities. Seguin highlighted that many government streamline refinance programs require less borrower documentation, such as income, asset, and appraisal information, thereby reducing the avenues for fraud. In contrast, purchase loans generally necessitate these documents, creating more potential for mortgage fraud. Overall mortgage applications saw a 5.2% increase from the first quarter of 2026. Purchase loans constituted 72% of all applications, a significant rise from 59% in the preceding quarter. Government loans also experienced a slight increase, accounting for 24% of total applications. Among specific fraud categories, undisclosed real estate emerged as the area with the largest year-over-year increase, rising by 2.6%. Cotality stated that undisclosed real estate can be used to conceal additional debt, misrepresent occupancy status, or hide prior credit events such as foreclosures, defaults, or short sales. The company suggested that an increase in applications for investment properties contributed to this rise in undisclosed real estate fraud. The shift in market dynamics, with purchase lending regaining momentum and higher interest rates impacting refinance volumes, created an environment where fraud risk could escalate. The index's movement reflects the sensitivity of fraud risk to prevailing economic conditions and lending trends within the mortgage industry.