If you're confused about why banks are being given federal bailouts while homeowners in foreclosure aren't, here's something interesting to consider.

According to an index that tracks active criminal and civil mortgage fraud cases, there's a cause and effect relationship between foreclosure and fraud.

Foreclosure filings rose 57 percent in March from a year ago, says RealtyTrac, and a five percent gain from February. That's more than 234,000 homes in some stage of foreclosure.

In tandem, the Fraudblogger Index for the first quarter of 2008, compiled by MortgageDaily.com, says there's been a jump in mortgage fraud cases filed, from 600 in the fourth quarter 2007 to 713 in the first quarter 2008.

It's a scary trend, as it represents over one billion dollars in active fraud cases tracked.

What's surprising is that the injured parties in the majority of cases aren't consumers, but banks defrauded by homebuyers, mortgage brokers, real estate agents and appraisers.

The good news is that active fraud cases are down nearly $800 million from the first quarter of 2007, but the bad news is that foreclosures largely due to fraud will continue throughout 2009. The number of cases is going up because through the first half of 2007, the industry was still involved in bad underwriting.

Lax underwriting helped encourage homebuyers to use mortgage products like no-doc loans where they didn't have to provide proof of the sources of their incomes.

That's how the fraud is being uncovered. As loans go into default, lenders are investigating the files.

Sam Garcia, founder of Mortgage Daily, estimates that one-fourth to one-third of these buyers committed some sort of serious fraud against the lender by lying about their ability to repay the loan. And that doesn't even count the less serious fraudsters -- like those who borrowed downpayments from friends or family and didn't tell the lender.

Wow! Any way to quantify that? "I get my sense of it from the rating agencies, the source for bad data in the files," says Garcia, "It will take two years to clean itself out."

In 1998 we went through a mini-subprime meltdown, recalls Garcia. But investors' appetite for buying mortgage-backed securities other than those guaranteed by Freddie Mac and Fannie Mae didn't go away.

This time, it's different, says Garcia. "From loan origination to securities, it's annihilated. We won't have the ability to jump back into risky loans for quite a while."

That's a relief.

Published: April 16, 2008

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.