Mortgage fraud may not generate the headlines it once did, but it remains a significant threat to lenders, borrowers, investors, and the housing finance system as a whole. While advances in technology and verification tools have helped reduce overall fraud risk, today's schemes are becoming increasingly sophisticated and harder to detect.
Recent industry data suggests that approximately 1 in 129 mortgage applications contains indicators of potential fraud, reminding us that fraud prevention remains a critical responsibility for everyone involved in the mortgage process. Mary Kay Scully, Director of Customer Education at Enact, shares key fraud risks and practical steps you can take to help prevent them.
What is mortgage fraud?
Mortgage fraud occurs when an individual intentionally provides false, misleading, or incomplete information during the mortgage process to obtain financing, influence loan terms, or gain a financial advantage.
It generally falls into two categories:
- Fraud for Property/Housing: Fraud for housing is typically committed by borrowers seeking to qualify for a loan or maintain homeownership. Examples include overstating income, understating debt, concealing liabilities, or misrepresenting occupancy intentions.
- Fraud for Profit: Fraud for profit schemes are often more complex and may involve multiple parties. These schemes are designed to generate illegal financial gain through activities such as occupancy misrepresentation, property flipping, inflated property values, undisclosed debt, straw buyers, or fraudulent documentation.
The rising concern: undisclosed real estate
One of the fastest-growing fraud risks involves undisclosed real estate holdings.
This can include:
- Hidden properties owned by a borrower
- Undisclosed mortgage obligations
- Occupancy misrepresentation
- Concealed adverse credit events
Undisclosed properties and debt can lead lenders to make decisions based on incomplete information, creating significant risk throughout the lending process.
Why investment and multi-family properties demand extra attention
Investment properties and multi-family transactions continue to pose elevated fraud risk compared to traditional owner-occupied transactions. These transactions often involve complex financial structures, rental income considerations, and occupancy concerns that may increase opportunities for misrepresentation.
This does not mean every investment property is risky, but it does reinforce the importance of thorough verification.
Emerging mortgage fraud trends in 2026
Mortgage professionals should remain alert to several common fraud indicators.
Income Misrepresentation
Income fraud can occur when earnings are overstated, altered, or otherwise misrepresented to qualify for financing.
Warning signs may include:
- Income that appears inconsistent with occupation or experience
- Discrepancies between documentation sources
- Unverifiable employment information
- Sudden increases in reported earnings
Occupancy Misrepresentation
Occupancy fraud occurs when borrowers incorrectly identify how a property will be used.
Examples include:
- Claiming an investment property as a primary residence
- Misrepresenting second-home occupancy
- Using a different mailing address than disclosed
Occupancy classifications can affect loan pricing and eligibility, making accurate reporting essential.
Property and Valuation Concerns
Property-related fraud indicators may include:
- Recent property flips without documented improvements
- Unusual increases in property value
- Multiple rapid transfers of ownership
- Questionable property characteristics
Wire Fraud and Cybercrime
Mortgage transactions continue to be targeted by cybercriminals seeking to intercept funds through fraudulent wire instructions.
These scams often involve:
- Email spoofing
- Business email compromise
- Fraudulent closing instructions
- Impersonation of real estate or settlement professionals
Fraud prevention in action: practical steps you can take
Recognizing risk is only the first step. Prevention requires diligence, verification, and a willingness to investigate inconsistencies.
Verify Occupancy Claims
Example: A borrower indicates they will occupy a property as a primary residence, yet the home is located far from their current employment and residence. Additional questions and supporting documentation may be warranted to back up that claim.
Confirm Income and Employment
Example: A borrower reports income that appears unusually high for their profession or experience level. Independent verification can help determine whether the information is accurate and reliable sources are used.
Review Property History
Example: A property purchased six months ago is being resold for substantially more without evidence of major renovations or market factors supporting the increase.
Investigate Undisclosed Real Estate
Example: Public records reveal an additional property that does not appear on the application. Further review may identify undisclosed debt or occupancy concerns.
Verify the Source of Funds
Example: A significant deposit appears in a borrower's account shortly before closing. Proper documentation can help verify and explain the legitimacy of the funds.
Protect Against Wire Fraud
Example: Updated wire instructions arrive by email shortly before closing. Always confirm instructions through a known, verified phone number before transferring funds.
A simple fraud prevention checklist
Before approving a loan, ask:
- Does the borrower's story make sense?
- Do the income, assets, employment, and credit records align?
- Are occupancy claims reasonable and supported?
- Have all liabilities and property holdings been disclosed?
- Does the appraisal support the property's value?
- Have any inconsistencies been fully investigated and resolved?
- Would an independent reviewer understand and support the lending decision?
Technology helps but human judgment still matters
Automated verification tools, predictive analytics, artificial intelligence, and fraud-scoring models help identify risk faster and more efficiently than ever before…
Yet, technology advancements cannot replace critical thinking.
Effective fraud detection often depends on professionals who are willing to pause, ask questions, and look beyond the checklist. A single inconsistency may have a legitimate explanation. Multiple inconsistencies deserve closer examination.
The strongest fraud prevention programs combine advanced technology, robust processes, ongoing education, and professionals who are committed to doing the right thing.
Fraud prevention starts with you
- Verify information rather than assume it's accurate.
- Question inconsistencies and unexplained changes.
- Pay close attention to occupancy, income, assets, and property history.
- Confirm wire instructions through trusted channels.
- Stay informed about emerging fraud schemes and industry trends.
- Foster a culture where concerns can be raised and investigated.
Fraud prevention isn't a one-time event or an annual training exercise. It's a mindset that should be applied to every transaction.
Your partnership with us doesn’t end here
While overall fraud risk may fluctuate with market conditions, the need for vigilance never goes away. Fraudsters continually adapt their tactics, creating new challenges for all of us in the industry. Every inconsistency investigated and fraudulent transaction prevented helps protect consumers and strengthen the housing finance system.
We have resources for you on fraud trends and prevention tips.
Continue your fraud prevention education and stay ahead of emerging risks.
Register for Enact's upcoming webinar today.
Fraud: Latest Trends and Tips Webinar - August 17, 2026 | 12:00 PM ET
Explore common fraud schemes, emerging trends, real-world case studies, fraud prevention best practices, and industry resources that can help mortgage professionals identify and mitigate risk throughout the lending process. Save your spot and access the course here. >>
Hear more from Enact’s fraud prevention experts.
Watch Mary Kay Scully and Lori Sherrod discuss emerging fraud concerns, industry observations, and actionable fraud prevention tips for today's mortgage professionals. Dive into their discussion here. >>
Don’t forget about the benefits of your Enact MI partnership. Feel confident during the loan process with Enact’s suite of tools—including Rate Express®, Underwriting Resources, and other training resources to further help you along the mortgage origination journey. Plus, you can always reach out to your Enact Sales Representative if you need an extra helping hand.
Source: Mary Kay Scully is the Director of Customer Education at Enact Mortgage Insurance with over 30 years of industry experience. She trains over 35,000 mortgage professionals annually on topics including tax return review, fraud detection, process improvements, and compliance.
The statements in this article are solely the opinions of Mary Kay Scully and do not necessarily reflect the views of Enact or its management. Opinions expressed are for educational purposes only. Always review current, applicable agency guidelines and consult your compliance and legal advisors when evaluating fraud prevention practices.
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