Actually I believe the game was based on the legend described by the creator:
Chief producer of Fatal Frame, Makoto Shibata, described the inspiration for the game’s haunted house, "In an area outside Tokyo, there lies a mansion in which it’s said seven people were murdered in a grisly manner. On the same property, there lie three detached residences that surround the mansion, all of which are rumored to have ties to the mansion’s troubled past. It’s said there is an underground network of tunnels that lay beneath the premises, but nobody knows who made these tunnels or what purpose they served. Many inexplicable phenomenon have been reported occurring on the property. Bloody hand prints have been found splattered all over the walls. Spirits have been spotted on the premises… even in broad daylight. A narrow stairway leads to an attic where a spirit-sealed talisman is rumored to be locked away. Men have sought this talisman, only to be found later with their bodies broken and rope marks around their wrists. There’s a crumbling old statue of a woman in a kimono, and then it has no head. If you take a photo of a certain window, a young girl can be seen in the developed picture. These incidents have provoked fear in the people of Tokyo, and many believe that those who live near this area will become cursed. The deaths of those seven people are unexplained to this day."
Whether it is just hype or an actual legend, it was still intriguing.
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