It’s no secret that the housing market has been rough recently — for both prospective buyers and industry professionals. Thanks to rising interest rates and low housing supply, existing home sales have struggled to regain pandemic-era highs, and tightening credit standards leave mortgage applicants with a one-in-five chance of being rejected.
In conditions like this, some will always bend the rules to get ahead. In fact, in 2024, there was more than an eight percent increase in fraudulent mortgage applications year-over-year, according to CoreLogic’s Mortgage Fraud Report. This breaks down to one out of every 123 mortgage applications.
“If a mortgage is found to have fraud, the lender may have the right to require the mortgage to be repaid in full right away,” says Bridget Berg, senior director of fraud solutions at CoreLogic. “If [the borrower] can’t access funds to pay off the loan, they could lose the home to foreclosure.” This can apply whether you’re a suspect or an unknowing victim.
And according to Berg, as fraud increases, lenders mitigate this risk by raising mortgage rates. When rates are already relatively high, this hurts all buyers — even if you haven’t been involved in fraud.
What is mortgage fraud?
Mortgage fraud occurs when an interested party uses deception during the mortgage process for financial gain. It can be committed by buyers or sellers, mortgage and real estate professionals, or multiple people working together. Because many people are involved in the process of finalizing a mortgage, with a variety of motives and incentives, mortgage fraud also comes in many flavors. Here are a few of the most common.
5 examples of mortgage fraud
Origination fraud
Origination fraud happens when a borrower or loan officer misrepresents the borrower’s qualifications to help him or her qualify for the loan or get a better mortgage rate. Misrepresentations of borrowers’ income, employment and debt, as well as the source of down payment funds, are among the most frequent, Berg says.
Of these, income information is the most commonly falsified. Among mortgages that were investigated for fraud in 2024, 42 percent included falsified income, according to Fannie Mae.
Borrowers may lie on their paperwork — but professionals have reasons to lie, too. “Real estate agents and loan officers may suggest or facilitate misrepresentations to protect their commissions,” Berg says. “Sometimes the borrower is not aware that information is being falsified.”
Occupancy fraud
Occupancy fraud is a type of origination fraud. Here’s how it works: A borrower applies for a loan on a duplex, saying they’ll occupy one residence while renting out the other. However, after the loan closes, they rent out both residences.
This is considered mortgage fraud because the borrower got the mortgage on the expectation that they would occupy the property. Rental properties are riskier than owner-occupied properties, and lenders set terms and interest rates based on that risk, says Berg. By lying about their occupancy status, an owner might be more easily approved for a loan or get more favorable terms — but he or she would also be committing fraud.
Identity fraud
You might associate identity fraud most with unexpected charges on your credit card, but it also shows up more and more often in mortgage applications, increasing by 5.6 percent in 2024 and 12 percent in 2023, according to CoreLogic.
Mortgage identity fraud happens when someone falsifies or uses stolen identity information, such as a social security number or tax ID number, to apply for a mortgage. Once payment comes due, the person with the stolen identity is on the hook. And if the fraud goes unnoticed, the victim’s credit may be destroyed.
Churning
When a loan officer engages in churning, he or she solicits a borrower to refinance, often right after closing on a mortgage, regardless of whether it makes financial sense for the borrower. A loan officer who does this may also have locked the borrower into an above-average rate on the original loan and use a lower refinance rate as an excuse for the second transaction. The loan officer then collects fees on both the original mortgage and the refinance, while the borrower pays closing costs for both.
Appraisal fraud
Appraisal fraud occurs when an appraiser overvalues a property. Because mortgages are granted based on a home’s appraisal value, and because both real estate agents and loan officers make commissions based on the sale price, they may cooperate with an appraiser to inflate the home’s value. Not only does a higher loan or sale amount translate to higher commissions, but if the appraisal comes in too low, the sale may not close — and the agent or loan officer won’t get paid.
Appraisal fraud is often committed in conjunction with other types of mortgage fraud. For example, a mortgage broker might buy a house at a foreclosure auction and create a fake buyer — also known as a straw buyer — with false or stolen information. The broker could then collude with an appraiser to overvalue the home. If the sale goes through, the broker and appraiser could pocket the sale money.
What are the penalties for mortgage fraud?
Just as there are many types of mortgage fraud, its penalties vary based on the perceived severity of the crime. In general, fraud committed to obtain housing — for example, a buyer misrepresenting their income — is seen as a smaller offense than fraud for profit, but if caught, you could still lose your home and damage your credit.
Fraud for profit is more common, and it can lead to severe penalties. Depending on the specifics, these might include up to $1 million in fines and up to 30 years in federal prison, or both.
A 2021 report — the most recent available — from the United States Sentencing Commission found that around 74 percent of offenders convicted of mortgage fraud were sentenced to prison. The median sentence was 14 months.
In November 2024, Tjoman Buditaslim, a real estate broker in San Francisco, was sentenced for conspiring to originate 102 mortgages, totaling more than $55 million, using fraudulent information. He was sentenced to 24 months in prison. The kicker? None of the applicants knew he was using fake information to help them qualify for the loan.
How to avoid being a victim of mortgage fraud
If you’re taking out a mortgage, the best way to avoid fraud is to be as clear as possible about the process. Try to:
- Check the licensing and reviews of the mortgage professionals you use.
- Read and keep copies of important mortgage documents, including your application, loan estimate and disclosures.
- Understand the documents you sign and push for clarification if needed.
- Monitor your credit reports for suspicious activity, especially when you’re taking out a large loan like a mortgage.
“Take an active role in your loan process,” says Berg. “Don’t give into pressure or allow yourself to be intimidated into signing documents you haven’t read or know to be inaccurate or omitting information. Successful fraud perpetrators are often charming people who gain the trust of others through great salesmanship.”
If you suspect mortgage fraud, you should report it. You can start by notifying your mortgage lender, then contacting the Federal Trade Commission (FTC) at ReportFraud.ftc.gov or calling 1-877-FTC-HELP (1-877-382-4357).
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