As home prices fall and banks raise lending standards, more people are lying on their loan applications, faking their property appraisals and committing other forms of mortgage fraud, according to a report released Monday.

The Mortgage Asset Research Institute, which collects data from most of the country’s mortgage lenders, said that incidents of mortgage fraud increased by 26% from 2007 to 2008.

And the geography of mortgage fraud appears to be shifting.

California, which had the fourth-highest rate of mortgage fraud in 2007, slipped to eighth place. Rhode Island, which had not been in the Top 10 for the past 11 years, has emerged as the state with the highest rate of mortgage fraud.

Florida, which had been ranked first in 2007 and 2006, dropped to second place. In third place is Illinois, followed by Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

The report was released today at the annual meeting of the Mortgage Bankers Assn. in Las Vegas. “With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, one of the report’s authors. “Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur.”

About 61% of all the reported fraud was related to lies on mortgage applications. About 28% of the frauds were related to tax returns and financial statements. The remaining fraud types were related to appraisals, verifications of deposit, verifications of employment, closing costs and credit reports. The report draws on reports to the institute by lenders and insurance companies following investigations of frauds that were used to secure a loan.

(Source: LA Times)