Yes…and no. Depending on how you lose weight you will loose fat and muscle mass. A lot of people will drastically drop their calories to drop weight fast…in turn they will lose fat but along with a lot of muscle. This is not the best way to do it. You have to eat right/clean while taking in quality calories along with some kind of exercise routine. The more muscle you have the higher your metabolism.
No you cannot change fat into muscle…think of them as two totally separate things. You can reduce fat by diet and exercise and you can build muscle by diet and exercise…but fat will never turn into muscle.