The report, issued in November by the US Treasury Department's Financial Crimes Enforcement Network (FinCEN), showed a 35% jump in suspicious fraud claims from the first quarter of 2005 to the first quarter of 2006.

FinCEN began its assessment after noticing a significant increase in the filing of suspicious activity reports concerning mortgage loans. Since the inclusion of mortgage loan fraud as a characterization of suspicious activity, the number of incidents pertaining to mortgage loan fraud had increased 1,411% from 1996 to 2005. "False statement" was the most reported activity, while "identity theft" was the fastest growing secondary characterization reported.

Garces, who provides consulting services to banks regarding the issue, says he sees several types of fraud. One type involves borrowers who falsify information on an application in an attempt to be approved for a mortgage. Another type involves "fraud for profit" whereby there is generally collusion among several real estate professionals, such as mortgage brokers, appraisers and real estate agents. For example, one individual may acquire a property and hires an assessor who assesses the property at an artificially high price. The buyer sells the property at the higher price, and then reaps the profits. Another type of fraud involves laundering money through property acquisition.

The trend is particularly prevalent in states such as Florida, where real estate prices have jumped dramatically in recent years, he says. "Another factor contributing to the trend is the number of innovative loan products that have been available in recent years, such as interest-only loans and no income verification loans," he adds.

To safeguard against the problem, there are measures mortgage and other professionals can take. "Understand who your borrowers are and verify information," Garces says. "Be wary of information that does not make sense."

Garces adds that professionals should be cognizant of "red flags," such as an appraiser unusually favored over others, or bank statements that contain deposits in round figures or from unusual sources.