AI Cracked the Mortgage Verification System

Mortgage underwriting runs on documents. Payslips, bank statements and tax returns are the evidence that lenders verify before approving a loan. Generative artificial intelligence can now produce all three in formats that pass standard checks.

Australia’s mortgage market may be facing up to $4 billion Australian dollars (about $2.8 billion) in suspected fraud, with organized crime networks using AI to fabricate the financial documents that underpin home loan approvals, Broker Daily reported June 29, citing the Australian Financial Review.

The Commonwealth Bank of Australia alone is investigating up to 1 billion Australian dollars (about $695 million) in potentially fraudulent loans, The Nightly reported March 16. Fraudulent applications were mainly submitted by fake small business owners who used AI to generate false accounts, profits and invoices.

Financial crime regulator AUSTRAC has convened a Fintel Alliance to allow banks to share intelligence with each other and with law enforcement, according to The Nightly.

Document Verification Cannot Keep Up With AI-Generated Forgeries

Some banks are now checking the digital fingerprints of submitted documents, examining file data for evidence that a document was generated by AI, The Nightly report said. That approach has limits. A fraudster who produces AI-generated documents and then runs genuine salary deposits through a real bank account for several months before applying has assembled a file that looks consistent on both sides of the verification check.

Some existing documentation verification tools may not be capable of detecting AI-generated or digitally altered submissions, according to legal commentary from law firm MinterEllison.

The Australian case has exposed a deeper failure in how verification was designed, said Dominic Tayco, principal of Thaddeus Martin Consulting, Gallagher reported May 19.

“We’ve been verifying documents when we should have been verifying people,” Tayco said, per the report.

National Australia Bank called for the creation of a National Economic Crime Strategy in a June 27 announcement, saying individual bank efforts are no longer enough.

“This is complex, organized crime that spans industries and borders,” the NAB said in the announcement, adding: “This is a system-wide problem, and it requires a system-wide response.”

Simone Constant, commissioner of the Australian Securities and Investments Commission (ASIC), issued an open letter May 8 to financial services licensees warning that AI is reshaping the fraud threat.

“This is not a distant or hypothetical risk,” Constant wrote. “It is here now, evolving quickly and requires the attention of boards and executives.”

Fraud Fix Requires Bypassing Borrower Documents Entirely

The Mortgage and Finance Association of Australia, the Australian Banking Association and other sector groups have petitioned Treasurer Jim Chalmers to expand the Consumer Data Right to give lenders direct consent-based access to Australian Taxation Office income data and ASIC registry information, according to the Broker Daily report.

Verifying income directly against government records bypasses the document layer entirely, the report said. The federal government committed 62 million Australian dollars (about $43 million) over two years from 2026 to 2027 to fund the next phase of the Consumer Data Right, including integrating tax authority data into the open banking ecosystem.

A borrower who submits a payslip is providing a document that can be fabricated. A borrower whose income is confirmed directly from the tax authority’s payroll system is providing data that cannot be.

“Digital finance was built around the assumption that more data creates more certainty,” PYMNTS reported June 10. “Synthetic borrowers invert that premise.”

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