Fraud persists for investor and multifamily projects

According to the Cotality National Mortgage Fraud Application Risk Index, the first quarter of 2026 ended with approximately 1-in-129 mortgage applications having some indicator of fraud, putting the Index at 121 for the period. This compared with 133 for the fourth and first quarters of last year.

Findings in investment property applications are why fraud risk is at current levels, Cotality explained.

The data found 1-in-44 applications secured by investment properties had indicators of fraud; for multifamily, the rate was even higher at 1-in-29.

"Lenders should remain diligent on fraud reviews, especially around investor and multi-unit homes as the underlying data does continue to show some risk there even with an overall decreasing fraud index," Matt Seguin, Cotality Mortgage Fraud senior principal, explained.

Cotality found increases in undisclosed real estate, inflated property values and transaction fraud risk quarter-over-quarter, to 1.4% and 7.1% respectively, Seguin added.

Investment properties continue to pose higher risks that owner-occupied properties and 2.5 times more likely to have defects.

Undisclosed real estate is a major indicator the borrower likely has undisclosed debt, occupancy misrepresentation, or poor credit.  

Many borrowers misrepresent the use of a property was not utilized as disclosed. For instance, a borrower stating a property was a second home although it was within 25 miles of the borrower’s primary residence.

Cotality did notice an increase in alerts related to a borrower having a high income relative to their age.

post-closing audits. pre-funding reviews. mortgage compliance. mortgage quality control.