While the feds have been cracking down on mortgage fraud activity, illegal operators are finding new ways to peddle their trade. According to the Mortgage Asset Research Institute (MARI) the amount of fraudulent loans issued in the 2^nd quarter of 2008 are up 45% compared to the same time frame last year.

Prior to the crackdown, typical examples of fraud were buyers inflating income to qualify for bigger loans, fake appraisals, fake buyers, or getting a mortgage and running with the cash. Nowadays, while those methods are still being used, there are also several new illicit ones on the rise. Vincent Robago, an assistant attorney general in Arizona, says that "It's a constant battle to keep up with the innovative ways that scam artists come up with to defraud others,...especially in the real estate industry where transactions are very complicated."

One new trick is under-appraisal, which usually involve short sales where the homeowner owes more on his mortgage then the home value. Normally, or legally, the owner would sell the home for a lower market value , accepted by the lender who would then forgive any difference. However, when it is done illegally, extremely low fake appraisals are made and if the banks are not careful they could agree to a home sale that brings in a lot less then what the homes in question should be worth. Once the banks accepts it, the buyers and owner then flip the homes for a bigger profit.

There is also the new ¨liar loan¨, which is generally done by borrowers. As lenders now require income and asset documentation to acquire loans, borrowers who took out ¨no-doc liar loans¨ (loans given without proof of income/assets) have started fluffing their documents. Robert Hagberg, a fraud investigator with Freddie Mac, says that "Liar loans are now fully documented - but with really good fraudulent documents,". With new technology and photocopying, it is that much easier to forge income statements, saving accounts, and tax returns. There are even Web sites that provide fraudulent documents. According to MARI, misrepresenting employment and income are the most common types of fraud committed.

Last but not least, another type of fraud being used is ¨buy and bail¨. This is where a person owes more on their mortgage then the home value and want a cheaper home. However, the owner cannot ditch the current home as no lender would give a new mortgage after that. Therefore, these owners tell the bank that they plan to rent the current home while buying the second and then later bail on it after receiving the loan. To try and curtail these activities, the FHA announced last month that they will no longer insure mortgages to homeowners with existing loans, if they are not able to show they have sufficient income to pay off both loans. Of course, it is highly probable that those who deal in fraud will find a new way to overcome this obstacle.