Mortgage Fraud is Rising: What Investors Should Know

Mortgage fraud is back in the headlines, and the numbers are moving in the wrong direction. Reports from Cotality (formerly CoreLogic) show that suspicious applications increased by more than 7 percent in the first quarter of 2025, following an even larger increase in 2024. Higher interest rates, fewer loan programs, and tighter credit standards have created pressure on both borrowers and industry professionals. The result is more cases where information is stretched, hidden, or falsified in order to get loans approved.

For real estate investors, the temptation to bend the rules can be strong, but the risks are serious. Fraud can lead to foreclosure, repayment demands, financial penalties, and even criminal charges.

What Counts as Mortgage Fraud?

Mortgage fraud covers a wide range of activity. Some cases involve deliberate deception while others start with what might feel like a small exaggeration. Regardless of intent, regulators and lenders treat misrepresentation as fraud.

Here are the five most common examples:

1. 1. Origination Fraud
   False statements made during the loan application process, such as inflating income or misrepresenting assets. In some cases, loan officers or agents are the ones manipulating the numbers, which can leave the borrower unaware of the issue.
2. 2. Occupancy Fraud
   Claiming a property will be a primary residence in order to qualify for a lower rate or an FHA loan, then turning it into a rental shortly after closing.
3. 3. Identity Fraud
   Using another person’s name, Social Security number, or financial data to apply for a loan. This is a serious crime and carries steep prison sentences if discovered.
4. 4. Churning
   Pushing borrowers into multiple loans or refinances in quick succession so the broker or loan officer earns extra commissions, leaving the borrower with unnecessary closing costs.
5. 5. Appraisal Fraud
   Inflating a property’s value to justify a larger loan. This practice was common before the 2008 financial crisis and remains a concern in some markets.

The Gray Areas

Not all mortgage fraud is black and white. Stealing someone’s identity is clearly criminal, but what about moving out of an FHA-financed property earlier than the 12-month requirement? Or overstating income by a small margin to qualify for a better loan? Even if these actions feel minor, they can still be treated as fraud if investigated.

Public figures have recently been accused of claiming more than one property as a primary residence. Whether or not those cases end in convictions, they highlight the fine line between questionable practices and outright violations.

What the Data Shows

Mortgage fraud is still relatively uncommon, but it is rising. As of mid-2025, fewer than one in 120 mortgage applications show a clear risk of fraud, according to Cotality. Yet investors are far more likely to cross that line than traditional homeowners. Studies from the Philadelphia Federal Reserve indicate that roughly one-third of investors commit some form of fraud on loan applications.

This is partly because investors often juggle multiple properties and face tighter requirements. When combined with high home prices and stricter lending rules, the pressure to qualify can push some into risky territory.

Why It Matters for Investors

Investors have more on the line than a single home. One misstep can damage a reputation, limit access to future financing, and potentially end a business. Even a small misrepresentation that goes unnoticed at first can be uncovered years later, creating legal and financial consequences that are difficult to undo.

With regulators using new tools, including artificial intelligence, to detect fraud, lenders are better equipped than ever to identify irregularities. The cost of getting caught far outweighs the benefit of shaving a few points off an interest rate.

Bottom line

Mortgage fraud is rising, but it is not inevitable. Investors can protect themselves by working with professionals who value compliance and long-term trust. A reliable mortgage broker is more than a middleman. They are a safeguard against mistakes, a guide through complex regulations, and a partner in building lasting success.

At Pacific Direct Mortgage, we believe the best deals are built on honesty, clarity, and speed. Our team helps investors, brokers, and borrowers navigate unique scenarios without shortcuts that could create risk later.

In today’s market, the right partner is everything. Trust your mortgage broker and work with experts who have your back. Trust Pacific Direct Mortgage.

Ken & Ari Walker

Husband & Wife Team Phone: 707‑708‑0797 / Office: 1400 N. Dutton Ave #22 Santa Rosa, CA 95401 Ken: CA DRE Broker #01858042 / NMLS #1221130 Ari: CA DRE #01858152 / NMLS #2170867 Ken & Ari are a husband & wife team with combined 3+ decades in real estate and private money industries. They own Pacific Direct Mortgage & Real Estate, specializing in Private Money loans (also known as Hard Money home loans). Having helped thousands of Borrowers & working directly with Brokers, Agents and Lenders to help when needed with fast, flexible, alternative financing for real estate purchases and refinances throughout California. No issues with DTI ratios, credit issues, property condition, difficult to prove income ‑ we want to help!