Mortgage application fraud risk declined 9.3% year over year in the first quarter of 2026, falling to a rate of 1 in 129 applications, according to data provider Cotality. The drop coincides with a sharp rise in refinance activity, which now accounts for 41% of all mortgage volume.
The decline suggests that improved borrower verification tools and tighter underwriting standards are curbing fraudulent submissions. Refinances, which typically carry lower fraud risk than purchase loans, have grown as lower rates spurred a wave of rate-and-term refinancing.
Cotality’s index measures the likelihood of material misrepresentation on mortgage applications, including income, asset, and occupancy fraud. The 9.3% drop marks the largest single-quarter improvement in over two years.
Industry experts caution that while the overall trend is positive, fraud risk remains elevated compared to pre-pandemic levels. Application volume has also increased, which can create pressure on lenders to speed up processing—potentially allowing some fraud to slip through.
Some analysts argue the decline may be temporary, noting that fraud often shifts toward purchase loans in competitive housing markets. If refinance volume slows later in 2026, fraud risk could rebound as originators chase fewer deals.