Mortgage fraud rose 30 percent last year; it is spreading nationwide, and it's getting the blame for the housing bust.

The Mortgage Asset Research Institute, a ChoicePoint service reported this week that not only has mortgage fraud risen by 30 percent from 2005 to 2006, but that the crime is spreading nationwide.

Once concentrated in relatively few state, "incidents of mortgage fraud are now more evenly distributed across nearly all states," according to the institute's "Ninth Periodic Mortgage Fraud Case Report To the Mortgage Bankers Association."

The report says most fraud comes from so-called "liar loans" where applicants (either on their own or because they are cajoled) are not truthful about their employment history and clamed income -- a crime punishable by up to 30 years in jail or fines of up to $1 million or both, according to the Federal Bureau of Investigations which, in recent years, has gone after mortgage fraud for what it is -- organized crime.

The Agency has reported collusion, conspiracy and racketeering among industry insiders as contributing to the rise in mortgage fraud in recent years.

During the housing boom, so called "no-doc" (for documentation) mortgages grew in popularity, because, as home prices rose, qualifying for a traditional mortgage became more and more difficult.

Relaxed underwriting standards were also introduced to give previously underserved consumers a better shot at home ownership. However, the easy money allowed too many loans to go to those who couldn't afford them, speculators and to opportunistic frauds illegally cashing in on the trend.

Today, many of those loans are failing.

A growing number of experts believe foreclosures, both fraud-related and others, stem from a boom that was spurred by the easy mortgage money. Failing lenders and banks with portfolios bulging with risky loans turned off the spigot leaving the housing market dry docked.

More than three out of four Americans believe mortgage fraud sank the booming housing market, according to a recent poll conducted by HousingPredictor.com.

The company says housing prices will fall an average of 4.2 percent on a national basis this year.

Federal Reserve Chairman Ben Bernanke, speaking at a financial conference in Chicago this week, said the downturn would, however, stop at the housing market and not spread to the rest of the economy as the Fed cracks down on abuses.

However, the Conference Board's index of leading economic indicators dropped 0.5 percent after a 0.6 percent gain in March, with the April index hurt by a continuing downturn in the housing market. Economists said the labor market remained healthy in spite of housing weakness and that should help save the economy at large.

That could change, given the spread of foreclosures and fraud.

Mortgage Asset Research Institute said the rate of fraud was highest in Florida and California, both previously major housing boom centers. Following those states with the highest fraud index were, Michigan, Georgia, Utah, New York, Illinois, Minnesota, Colorado and Nevada.

Published: May 18, 2007

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.