Investment property loans rank high on the fraud risk index
Mortgage Fraud Hits Multifamily Loans
Key takeaways
- Multifamily loans, especially 2- to 4-unit properties, saw a 43% increase in application volume year-over-year and now show fraud indicators in 1 out of every 27 applications.
- Despite a slight drop in fraud risk percentage, multifamily loans remain the most fraud-prone segment due to sheer volume.
- Investment property loans also rank high on the fraud risk index, driven by ongoing economic uncertainty and elevated purchase activity.
- Common fraud types flagged include undisclosed real estate debt, income misrepresentation, and transaction-level manipulation.
Multifamily Stays on Top
Multifamily and investment property loans are now the most fraud-prone areas in the mortgage market. Globe St reports that this is according to Cotality’s Q2 2025 National Mortgage Application Fraud Risk Index. Notably, 2- to 4-unit multifamily applications rose 43% compared to last year. About 1 in 27 of those showed signs of fraud.
Although the risk level for these loans dropped by 2% year-over-year, the sharp rise in volume kept them at the top of the fraud index. Investment property loans also continue to rank among the riskiest.
Market Conditions Add Pressure
Why the surge in fraud? According to Cotality, higher mortgage rates and economic uncertainty are contributing factors. Many expected interest rate cuts in 2024 and 2025. However, those cuts haven’t come fast enough. As a result, purchase loans—already more prone to fraud—now make up nearly 70% of all applications.
Matt Seguin, senior principal of fraud solutions at Cotality, noted that market volatility is feeding fraud risks. “The increase in the fraud risk can partly be attributed to the volatility starting to be seen in the real estate market,” Seguin said.
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Fraud Types on the Rise
The report also noted a broad rise in various fraud types. These include:
- Undisclosed real estate debt
- Income fraud
- Property fraud
- Transaction fraud
These risks are especially high in the multifamily and investment segments. Borrowers may be more likely to misstate income or omit debts to qualify for loans.
What Comes Next
Looking ahead, fraud risks in these sectors are likely to stay high. As investors look to maximize returns in a tight market, some may take on riskier or less transparent strategies. Lenders will need to stay alert. Stronger underwriting, better fraud detection tools, and more rigorous borrower vetting will be essential to limit exposure.
Source: CRE Daily
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