The housing market has yet to fully recover from its devastating recession, and fraudulent mortgage officers aren't doing anything to inspire confidence. In fact, the problem of mortgage fraud continues to get worse, according to a report by the Mortgage Asset Research Institute, a division of LexisNexis.

Reported incidents of mortgage fraud and misrepresentation by professionals in the mortgage industry increased by seven percent from 2008 to 2009, according to the report. While the pace has slowed since the 2007-2008 increase of 26 percent, the continued increase is believed to be attributed to better industry reporting and policing.

The 12th Periodic Mortgage Fraud Case Report examines the current state of residential mortgage fraud and misrepresentation in the US committed by professionals, based on data submitted by LexisNexis' Mortgage Asset Research Institute subscribers.

Florida, ranked number one in 2006 and 2007, has moved back into first place in the country for mortgage fraud and misrepresentation after being displaced in 2008 by Rhode Island. Florida also has close to three times the expected amount of reported mortgage fraud and misrepresentation for its origination volume. Rhode Island is not ranked on the Top-Ten list for 2009 because the state's sample size did not meet the minimum requirements set for the survey.

New York moved into second place, followed by California, Arizona, Michigan, Maryland, New Jersey, Georgia, Illinois, and Virginia. This is the first appearance on the report top-ten list for New Jersey and Virginia.

Not going away

"The data suggests that in 2009 there was a seven percent increase in the number of incidents of fraud reported to the LexisNexis Mortgage Asset Research Institute on top of the 26 percent increase reported in 2008. While this is a noticeable increase, we believe that mortgage fraud is significantly understated, even during times of massive origination volumes," said Jennifer Butts, LexisNexis Mortgage Asset Research Institute manager of Data Processing and co-author of the report.

"Lenders are facing hurdles with compliance, loss mitigation and staving off additional financial losses due to poor loan performance," said Denise James, LexisNexis Risk Solutions director of Real Estate Solutions and co-author of the report.

"This is not to say that mortgage fraud is going away; it is still a serious problem, and new trends continue to emerge. It remains critical for those in the mortgage industry to reassess their processes, work together by sharing information and reporting incidents of fraudulent activity, and ready themselves for more complex schemes in order to continue the fight against mortgage fraud," said James.

The top fraud incident type in 2009 - representing 59 percent of all reported fraud types - was application misrepresentation. This is the sixth year in a row it has topped the list.

In second place were frauds related to appraisal and valuation misrepresentation, which increased from 22 percent of reported misrepresentation in 2008 to 33 percent; with an 11-percent increase, this is the most notable increase in reported fraud types in 2009.

Additional documented fraud types included, in order of volume, verifications of deposit, verifications of employment, escrow or closing costs, and credit reports. Overall there has been a slight downward trend in total application fraud and misrepresentation moving from a high of 67 percent in 2005 to 59 percent in 2009.

"The information contained in LexisNexis Mortgage Asset Research Institute's 2009 Report serves as yet another wakeup call for the industry on the status and continued presence of mortgage fraud," said Darius Bozorgi, president and CEO of Veros. "We at Veros have been following these developments for years and based on our own analysis and experience we agree with the findings contained in the report. Fraud increases risk exponentially, and the industry must meet this threat head-on using all available intelligence and tools. Fortunately, the tools are increasing in availability and sophistication to address the challenges posed by perpetrators."

The report also found that:

• Arizona has moved into the top five for the first time;

• Eight of the top ten states are in the eastern half of the country;

• New Jersey and Virginia made their first appearance in the top ten for loans originated in 2009; and

• The states with the highest concentration of appraisal fraud and misrepresentation nationwide are all Midwestern States -- Ohio, Illinois, and Michigan.