Cotality's latest data shows the overall index improvement is hiding risk in several key lending categories
Fraud risk fell across most of Cotality's tracked categories in the first quarter of 2026, but the improvement was not uniform. Several categories are still moving in the wrong direction, and some of them sit squarely in segments where mortgage brokers are most active.
Cotality's National Mortgage Application Fraud Risk Index dropped to 121 from 133 in Q4 2025. Inside that decline, undisclosed real estate debt, inflated property values, and transaction fraud risk all saw increases. In addition, investment and multifamily properties continue to show fraud indications at rates far above the national average.
Matt Seguin (pictured top), senior principal of fraud solutions at Cotality, said the numbers brokers should be watching are not the ones getting the headlines.
"Every category that we track went down year over year except undisclosed real estate debt," Seguin told Mortgage Professional America. "And we've found that those alerts fire about 2.5 times more likely on investment properties and multifamily properties."
The highest-risk categories
Undisclosed real estate debt was the single largest year-over-year increase in Q1 2026, rising 7.7%. Seguin said borrowers with existing properties are more likely to have undisclosed holdings, which is why the alert fires at such a higher rate on investment and multifamily applications than on owner-occupied ones.
The numbers from Cotality's Q1 2026 data show how wide that gap actually is. One in every 44 investment property applications showed indications of fraud risk, and one in every 29 multifamily applications.
The overall industry average was one in 129. Brokers working in those segments are operating in a materially different risk environment than the headline figure suggests.
"Lenders should remain diligent on fraud reviews, especially around investor and multi-unit homes," Seguin said. "The underlying data does continue to show some risk there even with an overall decreasing fraud index."
Two additional categories rose quarter over quarter, even as the annual trend improved. Property fraud risk, which covers inflated valuations, increased 1.4% from Q4 2025 to Q1 2026.
Transaction fraud risk, which captures hidden conflicts of interest, disguised gift funds, and undisclosed seller relationships, rose 7.1% over the same period. Seguin said the increase in property risk was the one that caught his eye.
"It's the most recent data, that quarter over quarter, am I starting to see a new trend here that I'll be talking about in 6, 9, 12 months?" he said. "Those alerts will be more prone to pop up in scenarios where pockets of the country are seeing declining values or stagnating values."
Pattern fraud still a challenge
Pattern fraud is one of the harder problems to solve because no single loan tells the story. It only shows up when you look across many transactions and start seeing the same appraiser, the same investor, and the same cash-out structure repeating across a book of business.
He said a situation in Baltimore last fall illustrated the problem. The same appraisers, the same investor, and similar cash-out refinances were repeating across multiple transactions in ways no individual underwriter reviewing a single file would have spotted.
Fannie Mae's Crime Detection Unit, which uses Palantir's AI technology to identify fraud patterns at scale, started in the multifamily space and is expected to expand into single-family lending. Individual brokers and lenders who are not building their own tracking capacity may find themselves behind the curve.
"Pattern fraud is really tough," Seguin said. "I've been really harping on lenders to have a system, a database that you proactively track patterns and look for those kinds of risks."
At the state level, Cotality's Q1 2026 data identified the five riskiest states for mortgage fraud indicators as New York, Florida, Connecticut, New Jersey, and California. New York and Florida both saw increases from Q4 2025, with Florida up more than 3% and Connecticut up 6%.
The ongoing expansion of debt-service coverage ratio (DSCR) loans and other non-QM products is another area Seguin said brokers should not overlook. These loan types typically involve investment properties and fewer documentation requirements.
Borrowers in these products often have more complex financial profiles to verify, a combination that consistently produces elevated fraud risk in Cotality's data.
"The continued expansion of DSCR, non-QM. I think that continues and should be an area of focus for lenders, brokers, everyone involved in the industry," Seguin said.
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