Mortgage application fraud risks are both growing and evolving, according to data released this week by Cotality.

The California-based analytics firm’s mortgage fraud index rose 5.8% during the third quarter compared to the previous three months and was up 3.5% year over year.

But the risk calculus shifted, with property fraud risk increasing 2.3% from the year-ago quarter, supplanting undisclosed real estate debt as the biggest gainer among risk categories. The latter issue occurred at a 1.4% higher rate than the third quarter of 2025.

“The rise in property-related fraud alerts lines up with broader industry trends we’ve seen, especially in high-risk markets like New York,” observed Matt Seguin, senior principal of fraud solutions at Cotality, in a press release. “We’ll continue to see an increase in AI document manipulation, so it’s important that lenders use automated trend analysis and high-predictive data alerts to identify discrepancies before they turn into losses.”

Property fraud involves the “intentional misrepresentation of home characteristics or value,” according to Cotality.

The uptick in mortgage fraud risk comes despite lower application volumes, which by Cotality’s count dipped 11.3% during the third quarter.

A familiar culprit is partially to blame: artificial intelligence.

“The widespread availability of generative AI tools enables sophisticated document alteration that can easily bypass manual, human review,” the report stated.

Added Seguin: “In this AI era of mortgage fraud, leveraging verified data to identify anomalous patterns is the single most effective lever originators and servicers have for early fraud prevention.”

The multifamily segment faced the highest risk of AI-altered documents, with Cotality flagging 1 in 27 multifamily applications as showing risk indicators. Fraud risk cropped up in 1 in 42 loan applications for investment properties and 1 in 112 applications overall.

New York led all states in Cotality’s mortgage fraud risk rankings during the third quarter. Its score of 251 was more than double the baseline index reading of 100.

Florida placed second with a score of 204, followed by Washington, D.C., at 191 and Connecticut at 186.