As time goes on, mortgage fraud is only becoming a more widespread threat. Today, roughly one out of 123 mortgage applications shows signs of fraud, and that number jumps to one in 27 for loans for multi-family homes.
Fueled by advances in AI and other technologies, mortgage fraud schemes are becoming more complex, costly, and hard to detect. Fraud attempts cost lenders an average of 4.5 times the original transaction value, and lenders aren’t the only ones left holding the bag—borrowers can also face devastating losses, from foreclosure to legal repercussions.
So, how can you catch mortgage fraud attempts before they escalate? Below, we’ll examine the financial fallout of mortgage fraud, the most common red flags in mortgage applications, and innovative detection tools you can use to protect your lending pipeline.
Table of Contents
The Cost of Mortgage Fraud: By the Numbers
In 2025, the financial repercussions of mortgage fraud can’t be overstated. Here are just a few statistics that display the severity of these schemes:
- In 2021, mortgage fraud victims lost a median amount of $371,818.
- That same year, 13.2% of mortgage fraud cases involved losses exceeding $3.5 million.
- Last year, the FTC reported $12.5 billion in consumer fraud losses.
What’s even more alarming is that these metrics are on the rise. CoreLogic’s Mortgage Application Fraud Risk Index rose by 8.3% year-over-year in Q2 2024. They’re also becoming more effective, with 38% of fraud reports resulting in consumers losing money in 2024, up from 27% in 2023.
When mortgage fraud slips past lenders’ detection efforts, it can lead to repurchase demands from government-sponsored entities or private investors. Additionally, these schemes can put borrowers at risk of foreclosure, forced repayment, or legal action.
The Role of AI in Rising Mortgage Fraud
Tech advancements are a major driver of the surge in mortgage fraud. While the internet led mortgage-related Suspicious Activity Reports (SARs) to rise by 1,411% from 1997 to 2005, artificial intelligence (AI) is expected to have an even more profound impact on mortgage fraud’s scale, speed, and sophistication.
Deloitte predicts that generative AI will cause American fraud losses to surge by 32% each year, hitting $40 billion by 2027. Here are just a few AI-powered tactics already contributing to this trend:
- Deepfakes – These synthetic media tools combine features from real individuals to create entirely new, deceptively realistic personas. Fraudsters can use deepfakes to construct convincing synthetic identities that bypass traditional verification methods.
- Document fabrication – With today’s widely available AI tools, generating realistic financial documents is easier than ever before. Fraudsters can produce fake pay stubs, bank statements, tax returns, property deeds, and government IDs in a few clicks.
- Voice and video impersonation – AI-generated voice cloning and video technology are advancing fast. For unsuspecting lenders, these hyper-realistic impersonations can be tough to detect. During virtual closings, fraudsters may pose as real buyers or sellers, putting your transactions at serious risk.
While AI is fueling a rise in mortgage fraud, it may also be one of the best tools to combat it. Fannie Mae is taking a proactive approach by partnering with Palantir Technologies to launch an AI-powered Crime Detection Unit.
According to Alex Karp, Palantir’s co-founder and CEO, “This partnership with Fannie Mae will set off a revolution in how we combat mortgage fraud in this country. We are bringing the fight directly to anyone who attempts to defraud our mortgage system and exploit hard-working Americans.”
Who is Committing Mortgage Fraud—And Where?
Now that you understand how costly mortgage fraud can be, you may be wondering who commits it most frequently. Identifying these perpetrators can be difficult, considering that over 80% of mortgage fraud offenders have little to no prior criminal history.
Interestingly, many perpetrators are first-time homebuyers—these applicants are nearly twice as likely to commit fraud compared to repeat borrowers. Their lack of experience and insecurity about qualifying may tempt them to resort to deceptive tactics to secure more favorable terms.
Geographically, mortgage fraud is most prevalent in states with high housing costs and competitive markets. Current hotbeds include:
- New York
- Florida
- California
- Connecticut
- New Jersey
These state’s soaring home prices and high cost of living create strong incentives for applicants to falsify their income, employment, and other key information to improve their chances of approval.
Read More: How to Improve Mortgage Readiness In a Market Where Half of All Applicants Are Denied
What are the Most Common Forms of Mortgage Fraud in 2025?
In 2025, the most prevalent types of mortgage fraud include:
- Income and asset falsification
- Identity theft, which spiked by 12% in 2023 and another 5.6% in 2024
- Occupancy fraud, which has tripled since 2020
According to recent data from Funding Shield, nearly half of real estate transactions also show signs of wire fraud, marking the highest amount ever recorded.
While these schemes are the most common, they’re far from the only threats. Other forms of fraud to watch out for include property flipping, builder bailouts, short sale manipulation, reverse mortgage abuse, and straw buyer arrangements.
Read More: Mortgage Fraud Trends & Why It’s So Hard to Detect
Common Red Flags in Mortgage Applications
While you can’t prevent fraud attempts, you can train your team and employ savvy tools to spot suspicious activity early on. Here are some of the most common red flags that may indicate potential mortgage fraud:
- Mismatched or unverifiable Social Security Numbers (SSNs)
- Discrepancies between stated and reported income
- Unverifiable or suspicious employer information
- Credit alerts, such as Active Duty or Fraud Alerts
- Unexplained bank statement deposits
- Multiple recent credit inquiries or rapid credit score changes
- Inconsistencies between the borrower’s stated residence and property location
At Certified Credit, many of our solutions can identify these red flags in real time, enabling you to address them before your business or borrowers become another mortgage fraud statistic.
Certified Credit’s Fraud & Risk Mitigation Tools
We’ve seen first-hand how devastating mortgage fraud can be for lenders and borrowers alike. That’s why we’ve designed a strategic suite of solutions to help you spot deceptive activity at every stage of your lending process.
Our current Fraud & Risk Mitigation solutions include:
ADV-120 Fraud Report
This comprehensive, investor-approved report verifies all borrower information, giving you a 360-degree view of their credit and identity risk. You can tailor this report to match your organization’s specific risk tolerance.
Wire Transfer Fraud Report
Our Wire Transfer Fraud Report verifies your borrower’s bank account information and the settlement agent’s status before transferring funds. Better yet, it’s CFPB- and secondary market-compliant.
Read More: How to Tackle Wire and Title Fraud in 2024
Liens & Judgment Report
Since 2017, the credit bureaus have removed most liens and judgments from their credit reports. However, these data points are still relevant, considering that consumers with a lien or judgment are twice as likely to default on future debt. Our Liens & Judgment Report helps fill in these data gaps by showcasing these unreported items.
Read More: What Is a Liens & Judgments Report? [Add link when posted]
Undisclosed Debt Monitoring
From credit card balance spikes to new student loan delinquencies, many types of undisclosed debt can alter your applicants’ eligibility between their initial credit pull and closing date. Without proactive monitoring, you may be blindsided by these new additions. Fortunately, Cascade UDM can offer continuous blind spot protection, alerting you about applicants’ new inquiries, tradelines, late payments, and rising DTIs in real time.
Read More: Reducing Fraud and Repurchase Risk with Undisclosed Debt Monitoring
Tax Transcript Verifications
Income misrepresentation is one of the most common types of mortgage fraud. Stay one step ahead of it with our 4506-C Tax Transcripts, which verify that applicants’ stated income aligns with their tax return data using a direct IRS integration.
If you want an even more streamlined verification process, you can try out Tax Wallet Powered By Halcyon. This solution also features a direct connection to the IRS while offering faster turnaround times, longer access, and fewer fees.
Read More: Comparing Mortgage Lenders’ Tax Transcript Options: Form 4506-C vs. Form 8821
MERS Reports
These reports search for all liens registered under a borrower or co-borrower’s SSN, providing you with essential insights into your applicant’s mortgage history.
ID Risk Review
This add-on report highlights bureau alerts that show up on an applicant’s credit file, including Active Duty Alerts, address inconsistencies, fraud alerts, credit file freezes, and SSN mismatches.
SSA-89 Verification
Using a direct connection to the Social Security Administration (SSA), this solution ensures that your borrowers’ SSNs are valid and accurate, protecting your pipeline against identity theft.
Mortgage Participation Report
This exclusionary due diligence report cross-references borrowers’ names against government watch lists, helping you comply with investor and regulatory loan quality initiative (LQI) requirements.
Flex ID Smart Select Shield
Flex ID Smart Select Shield is a powerful pre-check tool that verifies applicants’ names, addresses, birth dates, SSNs, and phone numbers, enabling you to catch synthetic identity schemes or mismatched applications before you pay for their credit pull.
Read More: Why Smart Credit Pulls Are the New KPI for High-Performing Mortgage Teams
Portfolio Review
Just because a loan closes smoothly doesn’t mean its fraud risk disappears. Ongoing vigilance is necessary if you want to reduce unexpected losses. Portfolio Review can assist with this process by monitoring your existing portfolio for potential problems, from early payoff risks to emerging credit issues.
Protect Your Pipeline, Profits, and Borrowers’ Properties With Certified Credit
As the data clearly displays, mortgage fraud is on the rise. Without proactive safeguards in place, you’re at a greater risk of forfeiting profits and losing trust with borrowers who play by the rules.
Fortunately, you can fortify your fraud prevention by implementing the solutions above. These tools can keep you one step ahead of schemers by:
- Flagging red flags early on
- Verifying data against official sources
- Monitoring your portfolio, from initial applications through post-closing
Ready to start spotting issues before they spiral? Book your demo of Certified Credit’s advanced fraud and risk mitigation solutions today!
Sources:
Investopedia. Mortgage Fraud: Understanding and Avoiding It.
Housing Wire. Home sales are tepid, but mortgage fraud is becoming more common.
https://www.housingwire.com/articles/home-sales-tepid-corelogic-mortgage-fraud-risk-report/
Back Office Pro. 45 Mortgage Fraud Statistics & Risk Trends For 2025.
https://www.backofficepro.com/blog/mortgage-fraud-statistics-2025/
Deloitte. Generative AI is expected to magnify the risk of deepfakes and other fraud in banking.
Washington Post. AI voice clones are all over social media, and they’re hard to detect.
https://www.washingtonpost.com/technology/2023/10/13/ai-voice-cloning-deepfakes/
Fannie Mae. Fannie Mae Launches AI Fraud Detection Technology Partnership with Palantir.
Business Wire. FundingShield Q1 2025 Wire Fraud Risk Report Showing Nearly Half of Transactions at Risk.
Mortgage Orb. Mortgage Lenders’ Next Challenge: Finding New Sources For Lien And Judgment Data.
https://mortgageorb.com/mortgage-lenders-next-challenge-finding-new-sources-lien-judgment-data
