The Wall Street Journal reports (subscription required) that incidents of mortgage fraud rose 42% year over year, based on loans originated in the first quarter that have since been declared fraudulent. The Journal cites data from Mortgage Asset Research Institute.

That number is appalling, and it's hard to know what to make of it. There are two possibilities, as far as I can tell. Either:

• The tightening of the credit markets and the newfound conservatism of lenders is a myth, and fraudulent loans are being originated at a more rapid rate than ever before, with crooked consumers and mortgage salesmen thwarting the system even as national headlines warn about the huge problems caused by sloppy lending and mortgage fraud. Or
• The 42% jump is more a result of lenders actually doing the research to classify loans as fraudulent. Back when everything was going well, less energy might have been devoted to this.

It seems likely that the answer is some combination of the two. But based on this data, it's hard to conclude that lenders have cleaned up their act and stamped out bad loans. That doesn't bode well for the futures of the industry.

In a comment on my post about an internal memo demonstrating that JPMorgan Chase & Co. (NYSE: JPM) was advising its employees to assist home owners in committing mortgage fraud, one reader had this to say:

This is all bull. They don't know who to point there finger at! Some people just have selective memory loss and they simply cannot remember that they to had a say so when they got their home loans! Lets not just blame it on the Realtor or the mortgage broker!

The message here appears to be that consumers should have told the real estate professionals that they were behaving unethically and, in many cases, illegally.

A multi-million dollar fraud ring [subscription required] exposed in Atlanta may end up explaining more of the foreclosures than anyone imagined. Today's Wall Street Journal details the how the fraud ring got $6.8 million in mortgages from Bear Stearns (NYSE: BSC).

The Journal story talks about a New Yorker who told the bank that he and his wife earned more than $50,000 month as top officers of a marketing firm and submitted statements showing he had $3 million in assets, according to the federal fraud indictment. In reality, he was actually a phone technician earning $105,000 per year with only $35,000 in assets and his wife was a homemaker with no outside income. They bought a mansion for $1.8 and it recently sold out of foreclosure for $1.1 million. The scheme was exposed by neighbors who saw multi-million dollar homes sell for sky-high prices and then sit empty. People involved in this Atlanta ring are facing criminal fraud charges.

The FBI told the Journal that the percentage of white-collar agents and analysts devoted to prosecuting mortgage fraud is 28%. That's four times the number working on those types of cases in 2003 when it was only 7%. Lenders must file Suspicious Activity Reports when they suspect fraud. The number of reports being filed is up by nearly 700% between 2000 and 2006. In 2003 there were 436 active mortgage fraud cases and in 2007 the case load is 1,210.