Mortgage application fraud risk increased during the third quarter, according to new data from Cotality, even as the number of applications fell. The analytics company said its mortgage fraud index climbed 5.8% from the previous quarter and was 3.5% higher than in the third quarter of 2025.
The change was driven in part by a rise in property fraud, which Cotality defines as deliberately misstating a home’s characteristics or value. Risk in that category was up 2.3% from the same quarter a year earlier. That increase made property fraud the largest year-over-year gainer among the categories tracked by the company, ahead of undisclosed real estate debt, which rose 1.4% over the same period.
Application volume declined while risk indicators increased
Cotality counted an 11.3% decline in mortgage application volume during the third quarter. The increase in its fraud index therefore occurred against a smaller application base, rather than during a period of expanding application activity.
| Measure | Third-quarter result |
|---|---|
| Overall mortgage fraud index | Up 5.8% from Q2; up 3.5% year over year |
| Property fraud risk | Up 2.3% from the third quarter of 2025 |
| Undisclosed real estate debt | Up 1.4% from the third quarter of 2025 |
| Mortgage application volume | Down 11.3% from Q2 |
Artificial intelligence was another factor identified in the report. Cotality said generative AI tools can make it easier to alter documents in ways that may not be detected through a manual review. The company said the multifamily segment had the highest exposure to indicators of AI-altered documents: one in 27 applications showed risk indicators. The rate was one in 42 for investment-property applications and one in 112 across all applications.
“The rise in property-related fraud alerts lines up with broader industry trends we’ve seen, especially in high-risk markets like New York,” Matt Seguin, Cotality’s senior principal of fraud solutions, said in a company release.
Seguin also said the company expects document manipulation involving AI to continue increasing. Cotality’s report said lenders and mortgage servicers are using automated analysis and data alerts to look for inconsistencies before they produce losses. Those systems are intended to supplement the review of information submitted with a loan application.
New York ranked highest among states
New York had the highest mortgage-fraud-risk ranking in Cotality’s third-quarter data, with a score of 251. The report identified property fraud as a risk involving inaccurate claims about a home, including its attributes or value. Such information is used in the mortgage process to evaluate the property securing a loan.
- The overall fraud index rose from both the prior quarter and the year-earlier quarter.
- Property-related risk became the fastest-growing category in the data.
- Multifamily applications showed the highest share of indicators associated with AI-altered documents.
The figures measure risk indicators in mortgage applications, not confirmed fraud cases or losses. Cotality’s release described the results as evidence that the types of suspected misrepresentation facing the mortgage industry are changing as application volume declines and digital document tools become more widely available.
