Executive says he's 'definitely' seen instances of mortgage fraud in his area
Mortgage fraud has been a huge focus of Fannie Mae and the new Federal Housing Finance Agency (FHFA) director, Bill Pulte – and one mortgage executive who has seen fraud attempts in his area said the government's new efforts to reduce mortgage fraud are the right move.
Fannie Mae executives, including Pulte, announced a new initiative on Wednesday to help identify and eliminate mortgage fraud. In a partnership with Palantir, Fannie Mae will use artificial intelligence to help uncover potential fraud.
This new initiative is in addition to a mortgage fraud tip line that was set up by the Trump administration in April.
Alex Shekhtman (pictured top), CEO and founder of LBC Mortgage, said the move by Fannie Mae is a welcome move to try to clean up the industry.
“I think Fannie Mae’s AI-driven fraud initiative is a necessary step,” Shekhtman told Mortgage Professional America. “Technology can help us catch patterns and outliers we may not see with the naked eye. But tech alone isn’t enough. You still need sharp underwriters, responsive brokers, and a company culture that refuses to look the other way.”
One of the challenges with mortgage fraud over the years is that only the largest cases get exposed. It was very difficult for auditors to catch smaller cases of fraud, which can add up over a large loan portfolio. The hope by Fannie Mae is that the new AI-driven investigation tools will catch fraud large and small. Shekhtman is also hopeful it will be successful.
"Mortgage fraud is one of those things that doesn’t often make headlines unless it’s massive,” he said. “But behind the scenes, it’s always a concern. I’ve been in this industry long enough to know that when markets tighten, fraud attempts tend to rise. Whether it’s falsified income, occupancy misrepresentation, or identity manipulation, the intent is often the same: to make a deal work that shouldn’t.”
“Others weren’t playing by the rules”
Cotality, formerly CoreLogic, releases an annual Mortgage Application Fraud Risk Index. The 2025 numbers likely won’t be available until October, but the 2024 numbers showed estimated fraud on the rise.
The fraud index increased by 8.3% at the end of Q2 2024 compared to the end of Q2 2023. It was anticipated that one in 123 mortgage applications, including one in 111 purchase applications, were estimated to have fraud.
Identity fraud increased by 5.5% year over year, after increasing by 12% the previous year. Transaction fraud also increased by 4.9% annually after a 1.9% increase the year before.
Shekhtman said he’s seen fraud in his area, usually starting small and growing from there.
“We’ve definitely seen fraud attempts in our area over the years,” he said. “Some subtle, some blatant. It’s not always malicious in the beginning. Sometimes it starts with someone ‘just adjusting’ a document to qualify, or a third-party cutting corners to make a loan close. But those shortcuts can ripple through the entire system, and when you're working to build long-term trust, one bad actor can do real damage.”
He notes that it’s not just the issue of someone getting a loan they don’t deserve. When fraud cases happen, those playing by the rules begin to mistrust the system and lenders in general.
“As a lender, we’ve definitely come across situations where others weren’t playing by the rules, and it makes our job harder,” Shekhtman said. “It slows deals down, it creates mistrust with borrowers, and it can put everyone at legal risk. The clean path might take longer, but it’s the only one that actually holds up over time.”
Need transparency and accountability
Not all types of fraud are increasing. The 2024 report from Cotality showed several types of fraud had decreased year over year.
Property fraud risk declined 1.8%. This is when information about a property or its value is misrepresented. Income fraud risk, or misrepresentation of income amounts or sources, declined 2%.
Occupancy fraud and undisclosed real estate debt fraud also declined year over year. Occupancy fraud was down 3.9%, while undisclosed real estate fraud fell 6%.
The question will be how Fannie Mae’s AI fraud detection will compare with Cotality’s estimated fraud numbers.
New York attorney general Letitia James has been referred to federal authorities for potential mortgage fraud related to properties in Brooklyn and Norfolk, Virginia.https://t.co/9JaGxo6Yi3
— Mortgage Professional America Magazine (@MPAMagazineUS) April 17, 2025
Regardless of how the numbers line up, long-time mortgage professionals like Shekhtman will be happy to see people held accountable for making things more difficult for those who do things right.
“What I’d love to see is more transparency and accountability at every level, from lenders to originators to partners,” he said. “We’re all building the same system, and if one part’s rotten, the whole thing suffers.”
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