By Aarthi Swaminathan
Fewer than 40 people were sentenced for mortgage fraud in 2024, according to federal data
Federal Reserve governor Lisa Cook, Sen. Adam Schiff and New York Attorney General Letitia James have all been accused by the Trump administration of engaging in mortgage fraud.
Mortgage fraud has become a big focus for the Trump administration. But what exactly is mortgage fraud, and what are the penalties for committing it?
In the last few weeks, the Trump administration has accused three government officials of committing mortgage fraud by falsifying or misrepresenting intentions on mortgage documents and has called for two of the officials to resign.
Despite these high-profile accusations, mortgage fraud is “relatively rare,” said Matt Seguin, senior principal for fraud solutions at Cotality, a data company that, among other things, looks at mortgage applications to detect potential fraud.
As of the second quarter of 2025, only about 0.86% of mortgage applications, or about one in 116, carried the risk of potential fraud, an analysis by Cotality found.
The Trump administration has accused each of the three government officials of claiming two separate homes as a primary residence, a type of mortgage fraud that is not a common loan-document misrepresentation, experts say.
Nevertheless, the overall risk of fraud is going up. In a recent report, Seguin said that “the market is ripe for an increase in fraud because of the continuing high interest rates, slow housing market, and other increasing costs of homeownership like insurance affordability.”
He added: “If market conditions continue to challenge sellers, risks like misrepresented down payments, inflated prices, and straw buyers could increase dramatically.” Straw buyers are borrowers who obtain mortgages while disguising the identity of the actual buyer.
The Trump administration has stepped up efforts to find potential fraud by partnering with artificial-intelligence company Palantir (PLTR), according to Fannie Mae, which said the partnership is geared toward detecting and preventing mortgage fraud through “expansive monitoring” for “anomalous transactions” so that companies can detect suspicious activity and investigate.
Fannie Mae backs one in four U.S. mortgages. Given the volume of applications, it is difficult for lenders and the government-sponsored agency to scrutinize every single loan document, and AI is seen as a tool that could help identify potential fraud trends across millions of mortgage applications, Seguin said.
The three officials accused of mortgage fraud
The Trump administration has accused three officials – California Sen. Adam Schiff, New York Attorney General Letitia James and Fed governor Lisa Cook – of committing mortgage fraud, with each allegation varying slightly. Schiff and James, who are both Democrats, have long been political opponents of President Donald Trump. Cook, who was appointed to the Federal Reserve Board of Governors in 2022 by President Joe Biden, is closely aligned with Fed Chair Jerome Powell, who has resisted ongoing pressure from Trump to lower the benchmark interest rate.
In a July 15 post on Truth Social, Trump wrote: “Fannie Mae’s Financial Crimes Division have concluded that Adam Schiff has engaged in a sustained pattern of possible Mortgage Fraud.” Trump said Schiff had inaccurately claimed a second home in Maryland as his primary residence for more than a decade.
Claiming a home as a primary residence on a mortgage application can result in a lower interest rate. “If you are living in your home, it is less likely that you will be foreclosed upon or not pay your payments in the event of a recession,” Bill Pulte, a Trump ally who heads the Federal Housing Finance Agency, told CNBC on Wednesday. The FHFA regulates Fannie Mae and Freddie Mac, which securitize mortgages for the secondary market and also guarantee those loans.
In some cases, claiming a home as a primary residence can also lower the owner’s property-tax bill.
In response to the allegations, a spokesperson for Schiff said that he “received the rate that each lender deemed appropriate with full knowledge of the senator’s year-round bicoastal work obligations as a member of Congress, his use of two homes for that reason, and his creditworthiness.”
The spokesperson added that it is “laughable that Donald Trump, who turned the presidency into a pay-to-play scheme to enrich himself, is desperate to project his own corruption onto others.”
James has been accused of claiming two homes, one in New York and the other in Virginia, as her primary residence, and of buying a five-family property in Brooklyn with a type of loan that is only available for properties with four units or less. Pulte brought those allegations to Attorney General Pam Bondi on April 14.
James has not responded to a request for comment from MarketWatch, but in a letter to the Trump administration, her attorney called the administration’s actions politically motivated.
Pulte has also accused Cook, who is the first Black woman to serve on the Federal Reserve Board, of claiming two homes, one in Michigan and one in Georgia, as her primary residence. He also accused her of renting out the Georgia property despite claiming the home as her primary residence. Pulte brought those allegations to Bondi on Aug. 15. A spokeswoman for the Fed board previously told MarketWatch that she had no immediate comment.
Related: Trump calls on Fed’s Cook to resign as administration heightens focus on mortgage fraud
Claiming a home as a primary residence when one does not actually reside in it is considered a form of occupancy fraud. “You cannot do that in America,” Pulte told CNBC. “If somebody is claiming two primary residences, that is not appropriate, and we will refer for criminal investigation.”
Consequences of mortgage fraud
When a lender finds potential fraud, it files a suspicious-activity report to the Federal Bureau of Investigation, according to Seguin, and also reports the case to the agency backing the mortgage, such as Fannie Mae, Freddie Mac or the Department of Veterans Affairs.
“The consequences for mortgage fraud are real,” Ryan Dibble, co-founder and chief financial officer of Flyhomes, a wholesale mortgage lender, told MarketWatch. They can include prison time, fines or lasting credit damage, he said.
In 2024, the FBI received about 3,600 reports of potential mortgage fraud from lenders. So far this year, about 1,900 cases have been reported.
Investigations are then undertaken by the relevant agencies. Dibble said that state regulators, along with the FBI and the Department of Justice, are also involved in investigating and prosecuting fraud.
But based on the most recent data, a very small number of individuals have been sentenced either to jail or a fine. The number of cases has also declined sharply over time.
In 2024, only 38 people were sentenced for mortgage fraud, according to the U.S. Sentencing Commission’s data. The average length of jail time was 18 months.
The number of mortgage-fraud cases where an individual has been sentenced has decreased significantly over the years.
Common types of mortgage fraud
The most prevalent types of mortgage fraud are income fraud, occupancy fraud, liabilities fraud and asset fraud, according to Fannie Mae (see chart). Fannie Mae’s website also lists other types of fraud.
In 2024, the largest share of mortgage-fraud cases came from issues pertaining to income, meaning that the borrower provided inflated or fabricated income or employment, according to Fannie Mae.
Cotality’s Seguin outlined the three major types of fraud he’s seen in his company’s data.
Income fraud. Typically this refers to a borrower inflating their income or lying about their employer to help them qualify for a mortgage. Sometimes people create fake pay stubs and tax returns and even create a fake employer online.
Occupancy fraud. The most common type of occupancy fraud today is someone who plans to rent out a home or use it as a second home but represents to the lender that the house will be the owner’s principal residence. Borrowers can get a lower mortgage rate on principal residence and can borrow more money than they could for a second home or one they planned to use as a rental. There’s also reverse-occupancy fraud, which is a little different. In such cases, the borrower misrepresents an owner-occupied property as a rental property. Borrowers typically do this to show rental cash flow when they are applying for a new loan. For example, someone might pretend to expect rental income of $1,000 or $2,000 a month in order to qualify for a loan when they actually do not make money on the property.
Asset fraud. A borrower can create a fake bank statement and alter how much money they appear to have by adding a couple of extra zeros. Or they might add a family member to the mortgage application and claim that person is offering gift funds for the down payment, when in fact that person is not actually a family member. Or a borrower might get money from a real-estate agent or a mortgage broker and is pretend it is theirs on their loan application. It’s “a way to hide where the money is really coming from,” Seguin said.
Liabilities fraud. This type of fraud usually refers to when a borrower conceals their liabilities to appear less risky to their lender, for instance such as by hiding existing debt.
How mortgage fraud is detected
Mortgage lenders are typically the first line of defense when it comes to identifying mortgage fraud. They do sampling across a set of loan applications to identify if there is a risk of fraud, Seguin said.
They may also verify documents such as bank statements with banks themselves to ensure that they are not fabrications, and they may order transcripts from the Internal Revenue Service to find out if a tax return or a W-2 is real or fake.
-Aarthi Swaminathan
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