As many as 1 in 118 third-quarter mortgage applications had indications of mortgage fraud, a more than 8% rise from a year ago but an almost 3% drop over the quarter.

“Risk alerts for decreasing home prices across most of the U.S. increased by 400% year over year,” the property analytics firm Cotality noted in a recent release of its National Mortgage Application Fraud Risk Index.

Perhaps more notably, with roughly 1 in 3 home sales going to an investor-buyer in the first half of the year, Cotality reports that “undisclosed real estate fraud” rose significantly year over year, “as more investors juggle multiple mortgages with multiple lenders.”

“Oftentimes, those mortgages are being refinanced simultaneously, and they may be with different lenders,” says Matt Seguin, senior principal at Cotality Fraud Solutions, in a press release. “This could be why we’re seeing a continuing uptick in undisclosed real estate debt.”

Loan-level fraud risks

Undisclosed real estate fraud was the only category among six tracked by Cotality that increased over the year, attributable partly to a softening home price environment.

Besides that undisclosed debt, Cotality observed rising trends in income, identity and occupancy fraud. Its fraud risk index continues to indicate that the two highest-risk categories are in the investment and multifamily spaces, estimating that 1 in 45 investment applications and 1 in 26 multifamily applications had suggestions of fraud.

Meanwhile, the share of those segments among total mortgage applications has risen year over year. Investor-buyer share rose from 7.3% to 10% over the year in the third quarter, while multifamily mortgage applications rose from 1.1% to 1.8%.

Unlike mortgage fraud risk reported through consumer complaint channels, Cotality analyzes loan-level data on millions of mortgage loan applications submitted for various loan types for individual borrowers, with algorithms flagging indicators of fraud risk.

States that saw the largest overall annual rise on the mortgage fraud risk index were Ohio, with a 55% increase in applications flagged for fraud risk, Delaware (41%), Kansas (35%), Vermont (35%) and Oklahoma (33%).

Federally, most loan-level mortgage fraud is more closely monitored by the Federal Housing Administration (FHA) and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, the three of which, along with the Department of Veterans Affairs, backstop the large majority of residential mortgages.

‘Close down the agency’

The annual increase in mortgage fraud comes as the Consumer Financial Protection Bureau (CFPB) is being steadily dismantled by its acting director, Russell Vought, who also serves as director of the White House Office of Management and Budget.

In recent weeks, Vought has doubled down on his intent to close the bureau for good.

“We don’t have anyone working there except our Republican appointees and a few [career employees] that are doing statutory responsibilities while we close down the agency,” Vought said on an October episode of “The Charlie Kirk Show” podcast.

The CFPB was created in 2011 through Dodd-Frank Act legislation to supervise financial markets and enforce financial laws — especially those governing mortgage fraud, the driver of the 2008 financial crisis that was the primary impetus for the bureau’s creation.

The CFPB was also created in large measure to provide nationwide alignment across often disparate state banking and enforcement frameworks, and to set supervisory best practices and standardize interpretations of banking laws.

Interrupting that iterative process risks destabilizing how mortgage fraud is interpreted and enforced by state regulators just as the complexity of ways technology can be leveraged to commit fraud intensifies.

“I have seen an increase in GSE enforcement for mortgage fraud in 2025,” says Daniella Casseres, partner and head of the mortgage regulatory practice group at financial services law firm Mitchell Sandler. She tells Scotsman Guide that in some cases, this enforcement “has led to pulling mortgage lenders’ approvals and both companies and individuals being placed on their exclusionary lists.”

Previous CFPB Director Rohit Chopra, nominated in January 2021 by President Joe Biden, faced strong criticism from financial trade groups and Republican lawmakers over what they deemed were opaque supervisory standards and maverick rulemaking.

Timothy Ofak, a partner at Weiner Brodsky Kider, a national law firm that represents financial firms, home builders and real estate settlement service providers, says he is aware of recent lender initiatives to strengthen guardrails around preventing occupancy fraud as business-purpose mortgage lending is on the rise.

“Such efforts are important,” says Ofak, “because undetected borrower fraud leads to increased investor repurchase demands and government indemnification requests down the road.”

Mortgage regulators adjust

On Monday, the U.S. Department of Justice’s Office of Legal Counsel filed an opinion in an ongoing court case that challenges the legality of CFPB funding. The DOJ opinion argues that the Federal Reserve cannot legally fund the CFPB because the Fed has not generated any profits since 2022.

Government lawyers suggest that to even request funds could be illegal, and thus the CFPB will have no way to fund its legally mandated functions by early 2026, when it anticipates exhausting its current appropriations.

At the state level, financial regulators and licensing bodies actively monitor compliance and enforce state and federal regulations governing mortgage fraud.

Kristen Anderson, head of the Oregon Division of Financial Regulation and president of the American Association of Residential Mortgage Regulators, an industry partner of the Conference of State Bank Supervisors in aligning state and national regulatory priorities, says the industry may be cycling into a period of increased fraud risk.

Not all mortgage fraud risk can be addressed by state regulators, though. Jurisdictional limitations prevent state regulators from pursuing consumer mortgage fraud, Anderson explains, limiting their authority to the lender side of the transaction.

“In most of our day-to-day work it has not made a difference,” says Anderson on losing the CFPB as a partner in aligning state and federal regulatory priorities, calling the divorce “sad” but not highly disruptive.