Mortgage fraud risk climbed 9.1% in Q2 2026, according to Cotality's latest assessment. The rise reflects a shift in lending patterns as purchase activity rebounded while refinance volume stayed weak due to elevated mortgage rates.

Purchase lending drove the fraud uptick. When borrowers actively hunt for new homes, fraud schemes proliferate. Applicants face pressure to qualify for larger loans in competitive markets, creating incentive to misrepresent income, assets, or employment history. Lenders reporting stronger purchase volumes also process more applications overall, expanding the surface area for fraud attempts.

Refinance lending remained sluggish throughout Q2. Higher rates discouraged homeowners from refinancing existing mortgages, so lenders processed fewer refi applications. This segment typically carries lower fraud risk than purchase lending because borrowers refinancing existing loans face less pressure to overstate qualifications. The slowdown in refi activity actually provided some protective offset, but not enough to prevent the net increase in overall fraud risk.

For lenders, the 9.1% jump signals tighter verification protocols ahead. Mortgage fraud costs the industry billions annually through loans that default when fabricated information emerges. Lenders must strengthen income documentation, employment verification, and asset confirmation processes.

Mortgage brokers and loan officers face pressure too. They process applications on the front line where fraud often originates or passes through undetected. Compliance teams now scrutinize application data more heavily, extending approval timelines.

Borrowers should expect lengthier underwriting. Documentation requests will increase. Legitimate applicants need clean financial records and honest application materials to move through approval efficiently.

Home sellers in competitive markets may experience slower sales timelines as lenders take longer to clear purchase applications. This extends closing periods and creates uncertainty in transaction chains.

Real estate agents working in hot markets need patience. A 9.1