The prevalence of fraud risk in mortgage applications declined on a quarterly and yearly basis in the first three months of 2026, according to new reporting by Cotality.

As many as 1 in 129 mortgage applications triggered alerts related fraud in the first quarter, compared to 1 in 118 applications flagged in the fourth quarter, which the company described as a “return to historical averages”.

Overall, the real estate market analytics firm said Monday that its National Mortgage Application Fraud Risk Index declined 9.3% over the year and 9% from the previous quarter.

However, investor-purpose and multifamily loan applications continued to exhibit a much higher prevalence of fraud risk than their owner-occupied counterparts.

Compared to the roughly 0.77% of all mortgage applications that triggered fraud alerts in the first quarter, applications for investor-purpose loans bore a fraud-risk rate of 2.27%, representing in 1 in 44 applications. Multifamily mortgage applications had a rate of about 3.45%, or 1 in 29 applications.

“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,” said Matt Seguin, who leads Cotality’s mortgage fraud division, commenting in the company’s quarterly report.

Cotality’s index reflects an aggregate level of loan-level fraud risk in the mortgage industry. It is generated from millions of mortgage loan applications for various loan types submitted by individual borrowers, examined by algorithms flagging fraud indicators.

Among the six categories tracked through the index, only “undisclosed real estate” rose year over year in the first quarter, the continuation of a trend in 2025 as real estate investor activity increased across the industry.

Alerts for fraud risk related to undisclosed real estate — which spans issues such as undisclosed debt, occupancy misrepresentation or a borrower’s past foreclosure — were 7.7% higher in the first quarter compared to a year ago. Cotality said the increase “appears to be driven by more volume” in investment-purpose applications.

However, the 13% combined share of investor and multifamily applications in the fourth quarter fell to 12% in the first quarter of 2026, even as overall application volumes bumped up 6.7% over the quarter. Applications for purchase loans accounted for 59% of transactions as purchase volumes fell to 2014 levels in the first quarter.

While the five other fraud risk categories tracked by Cotality decreased from a year ago, property fraud risk related to inflated property values and transaction fraud risk increased 1.4% and 7.1%, respectively, over the quarter.

The five riskiest states for mortgage application fraud in the first quarter were New York, Florida, Connecticut, New Jersey and California.