Mortgage fraud is back in the spotlight — and it’s growing faster than many people realize. According to recent industry data, the risk of fraudulent applications jumped by more than 7% in early 2025 compared to the same time last year. While that may not sound huge, it marks a clear upward trend that investors and homeowners can’t afford to ignore.
Let’s break down what’s happening, why it matters, and how to stay on the right side of the law.
What Counts as Mortgage Fraud?
Mortgage fraud isn’t always a big elaborate scheme. In fact, some of the most common cases involve simple misstatements on a loan application. The key issue is intentional misrepresentation — knowingly providing false information to get better loan terms or qualify for financing you wouldn’t otherwise receive.
The most frequent types include:
- Occupancy Fraud – Claiming you’ll live in the property as your primary residence when you actually plan to rent it out.
- Income or Asset Misrepresentation – Inflating your salary, hiding debt, or using fake documents to meet loan requirements.
- Appraisal Manipulation – Working with an appraiser to overstate a home’s value.
- Identity Theft or Straw Buyers – Using someone else’s identity or credit profile to secure a mortgage.
While some cases are outright criminal, others live in a gray area — like house hacking arrangements where you move in briefly and then turn the home into a rental. Lenders typically require you to occupy the property for a minimum time (often 12 months), so failing to do so can still be considered fraud.
How Common Is It?
Despite rising numbers, fraud risk is still relatively rare overall. Less than 1% of all mortgage applications show signs of fraud. But among real estate investors specifically, the rate is much higher — some estimates suggest that as many as one-third of investors misrepresent occupancy at some point.
This is a problem for lenders and regulators because investor loans carry more risk. When markets cool, non-owner-occupied properties are more likely to go into default.
Why the Spike in 2025?
Several factors are likely driving the increase:
- Higher interest rates – The difference between investor and owner-occupied loan rates is significant, tempting some to claim primary residency.
- Tighter lending standards – As underwriting becomes stricter, some borrowers feel pressured to “fudge the numbers.”
- High home prices – With affordability stretched, some buyers are willing to take risks to secure a property.
The Consequences Are Serious
Mortgage fraud isn’t just a paperwork technicality — it’s a federal crime. If you’re caught, you could face:
- Loan call-backs (being forced to repay immediately)
- Foreclosure
- Fines
- Prison time (the average sentence for mortgage fraud offenders in recent years is over a year)
Even if criminal charges aren’t filed, being flagged for misrepresentation can make it harder to get financing in the future.
How to Protect Yourself
If you’re an investor or homebuyer, the safest move is to stay 100% truthful on all mortgage applications. Here are a few tips:
- Be clear about your intentions – If you plan to rent the property out, get the right type of loan from the start.
- Work with reputable lenders – Avoid anyone who encourages you to “just say you’ll live there.”
- Document everything – Keep records of your income, assets, and occupancy to back up your application.
- Ask questions – If you’re unsure whether something is allowed, consult a real estate attorney or trusted mortgage professional.
Final Thoughts
The rise in mortgage fraud cases is a reminder that cutting corners can carry big risks. With regulators watching more closely and technology improving at detecting fraud, the odds of getting caught are higher than ever.
If you’re serious about building wealth through real estate, it pays to do things the right way — even if that means paying a slightly higher rate or waiting a bit longer to buy.