While it is tough to identify mortgage fraud at origination, one expert gives a few tips on how to nab fraudsters
Since the FHFA announced its partnership with Palantir earlier this year, mortgage fraud hasn’t been far from the top of mortgage news headlines.
It's now back in the news due to the Trump administration's efforts to remove Fed governor Lisa Cook due to alleged mortgage occupancy fraud. And while that type of fraud is easier to catch after the fact, one industry expert believes there are a few things brokers can do at the front end to help derail potential fraud.
Matt Seguin (pictured top), senior principal of fraud solutions at Cotality, said some of the things brokers and lenders can do to catch fraudsters vary depending on whether it is a purchase or refinance transaction.
“I think it's different between purchases and refi,” Seguin told Mortgage Professional America. “With purchases, you are taking the borrower's word that they intend to occupy it in the future, and you look at that language in the deed of trust that says they'll occupy within 60 days. It's really hard for a lender or broker to do that.”
Possible warning signs
Even though it is challenging to prevent occupancy fraud upfront, Seguin did suggest a couple of things that could merit further investigation.
“There are some things to look for,” he said. “They own another property that's a much higher value than the current subject property in a seasonal area, a mountain area, a beach area, where somebody probably typically would do a rental property. They probably would typically not live there full time.
“Also, are they moving somewhere where their commute to work is unreasonable? Since so many people today are working remotely, that’s a little harder. But if they have a job where they have to go on site, and they supposedly are moving three hours away. Does that commute make sense? Maybe it does in New York City, but not in many of the other places around the country.”
While purchases present a problem on the front end of the loan, refinance loans can provide a few more tangible clues to mortgage brokers trying to catch potential fraud.
“You have documents like pay stubs and bank statements where you're able to look at mailing addresses and see whether something lines up from that perspective,” Seguin said. “Or, is renters insurance showing on the hazard policy when you wouldn't expect it to be. There are more red flags that could be identified on a refi than on a purchase.”
With the FHFA cracking down on fraud, Seguin said they have an easier job than brokers because they get to look at the loan months later. At that point, it is much easier to spot fraud, especially occupancy fraud.
“They are challenging for the originator, compared to Fannie or Freddie, who look at it 120 days later,” he said. “If they never change their mailing address or the service, or Fannie and Freddie Google the property and find it listed for rent. They have it a little easier from that aspect than the originator does.”
AI versus AI
Another factor leading to an increase in fraud is macroeconomic conditions. Affordability challenges, especially with the rise in property taxes and insurance, are making fraud seem more appealing to some borrowers.
“The real estate market in general, a lot of those other factors that are out there that are starting to potentially be contributors to fraud,” Seguin said. “You have certain areas of the country with negative or slowing housing price growth. Property taxes and property insurance are increasing. And that's making it tougher for the homeowner.
“Maybe they were on the fence of qualifying from the 50% ratio. We always talk about fraud, you need a motivation generally to do it. And as people get into trouble there, there might be more motivation to make a bad decision.”
While the government has turned to AI technology to detect mortgage fraud, many individuals committing the fraud are also utilizing advanced technology to stay one step ahead.
Federal Housing Finance Agency (FHFA) director Bill Pulte has filed a new criminal referral against Federal Reserve governor Lisa Cook as tensions between the Trump administration and the central bank rumble on. https://t.co/mYiEvczz2c
— Mortgage Professional America Magazine (@MPAMagazineUS) August 30, 2025
“Those fraudsters are going to have access to that same technology and the AI,” Seguin said. “They're probably using PDF writer. They have AI, the lenders have AI, and it's a battle of the AI robots. We'll see who comes out on top.”
Seguin emphasizes that while AI is a vital tool in detecting fraud, brokers, lenders, and underwriters remain essential components of the fraud detection process.
“The advances in technology will be helpful, but you still do need some of those eyes, just the human underwriter to make sure everything from a documentation standpoint makes sense,” he said. “Like, does it make sense that this borrower was an Uber driver last year and is now a manager somewhere, making half a million dollars? A machine isn’t necessarily always going to figure that out.”
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