President Donald Trump's decision to fire Federal Reserve Governor Lisa Cook has brought the issue of mortgage fraud to the forefront. CNBC's Diana Olick joins 'Squawk on the Street' to discuss the issue's prevalence.

Mortgage fraud risk has seen a slight increase, rising just over 6% nationally compared to the previous year, according to Kotality. However, the overall share of fraudulent mortgage applications remains low, moving from 0.81% to 0.86%. Lenders are now more capable of detecting fraud, largely due to technological advancements. 

Reports from Fannie Mae and Freddie Mac indicated just over 3,100 potential cases of mortgage origination fraud, but actual prosecutions are rare, with only 38 individuals sentenced last year. Most fraud occurs in loans for two to four family buildings, often involving misrepresentation of occupancy status. Recent changes, such as Fannie Mae lowering the minimum down payment for these properties, may be contributing to the trend.

Mortgage fraud risk on the rise, but lenders catch it more often

Welcome back. President Trump's decision to fire Fed Governor Lisa Cook has brought the issue of mortgage fraud to the forefront But the practice may be less widespread than you might think. Diana Olick joins us. She has that story. Diana Well, David, mortgage fraud risk is rising slightly But it's still at a very low level and lenders are catching it more often now, thanks to technology. Mortgage application Fraud increased just over 6% nationally in Q2 from a year ago, that according to Kotality. Again that's Applications which can predict risk but overall it's a really low amount as in the share of fraud in all mortgage Applications went from 0.81 percent to 0.86 percent. So there's your risk now last year There were just over 3,100 actual reports of potential mortgage Origination fraud from Fannie Mae and Freddie Mac alone and that's according to the Treasury Department's financial crimes enforcement network That excludes private lenders But according to the US Sentencing Commission that last year just 38 individuals were sentenced for the crime of overall Mortgage fraud average sentence length 18 months now Kotality's Matt Seguin who's an expert in mortgage fraud says a lot of fraud cases are just not Prosecuted because lenders say it's not worth the time and the money They just deal with the repercussions of the bad loan like a potential foreclosure I spoke with lender Gary Kingsbury at vellum mortgage Who said he sees the most fraud in mortgages for two to four family buildings? So the buyer will claim that they're living in one unit But renting out the others and that's because the difference in the mortgage rate for an owner occupant versus an investor Depends on how big the down payment is now smaller down payment bigger difference Interesting though Fannie Mae recently lowered the minimum payment down payment for two to four unit buildings from 25% to 5% So that could be part of why we're seeing more fraud back to you guys, Diana did we see a spike in these kinds of Applications when you know coming out of kovat where we weren't really sure who or where our primary residence was going to be Well, I wouldn't call it a spike remember it's a very small number to begin with so that's why that 6% seems higher But you did see people moving. It's not necessarily on that occupancy fraud though. They don't make that out So it's hard to say whether that did mean, you know, some people moving to different places and citing that so there's no specific data On that right, right. Yeah, there's a strange time for mobility as we all remember

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