A pandemic of mortgage fraud, which in 2004 reached organized-crime levels of collusion and conspiracy, worsened in 2005 and, along with the easy-money lure of rising home prices, real estate and banking officials are getting some of the blame.

No matter who ultimately goes down for the crime, consumers are advised to be on the lookout for suspicious mortgage activity including pressure tactics, failed disclosures, unsubstantiated home values, homes recently purchased and sold again, and other red flags that fraud may be packaged with the deal.

The FBI announced 21,994 reports of "suspicious" real estate activity, much of it mortgage fraud, for the fiscal year 2005, up from 17,127 the previous year. The 2004 number was nearly 2 ¹/2 times 2003's levels.

FBI statistics also noted 721 pending mortgage fraud investigations in numerous states, up from 534 in 2004, more than three times the number in 2003 and the agency's largest nationwide enforcement operation directed at financial institution fraud.

Unfortunately, as the effort has grown, more suspects are walking.

There were 170 related convictions in 2005, down from 172 in 2004 and 206 indictments in 2005, down from 241 in 2004.

Fewer convictions are contributing to the growth in costs related to the crime--$429 billion in 2004, $1 billion in 2005.

Along with the FBI and Department of Justice, the Secret Service, U.S. Postal Inspection Service, Office of the Inspector General, Internal Revenue Service, Department of Housing and Urban Development, state attorneys general, and other law enforcement agencies are investigating the crime from street-beat level to joint task force efforts.

FBI investigators are admonishing lenders to be more diligent about checking Social Security numbers, signatures and other identification to make sure it is legitimate for loan applications. FBI investigators also continued to hammer banking officials about verifying appraisals. Many types of mortgage fraud would be impossible without over-inflated appraisals.

Chris Swecker, assistant director of the FBI, said while the hot real estate market is attracting legitimate buyers and investors, some of them are being duped by a growing number of "industry insiders" who comprise 80 percent of all reported fraud losses by using collaboration or collusion to siphon cash from rising home values.

In a November speech at an Institute of Internal Auditors Fraud seminar, Grant D. Ashley, assistant director of FBI law enforcement services, reminded the audience that mortgage fraud can strip borrowers of their cash, homes and favorable credit standing. When loans end up in foreclosure, lenders become victims. Ultimately, the economy suffers.

"Like corporate fraud, mortgage lending and the housing market have a significant impact on our nation's economy," he said.

A first-cousin to predatory lending, mortgage fraud, according to the FBI, is defined as "a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan."

"Typically, their M.O. (method of operation) is revolving equity, falsely inflating property values, or issuing loans based on fictitious properties," Ashley said.

Ashley listed property flipping as a common scam. It's legal to buy a property and sell it soon after for a profit based on real market forces. Illegal flippers, however, buy properties and then conspire with appraisers to artificially inflate their value before reselling the property. Ashley said flipped properties are repurchased for 50 percent to 100 percent of their original value.

Equity skimming is another trend--insiders persuade unaware borrowers to repeatedly refinance their mortgages every few months. With each refinance, the rate may be slightly lower but the come-on includes a higher loan amount necessary to cover the origination fees and other costs of refinancing. After the perps repeatedly skim equity in the form of origination fees, the loans become too large for the borrower and he or she defaults.

"Many people want to believe their homes are worth more than they are, and the recent housing booms across the U.S. have attracted criminals who want to exploit the situation to make a quick profit," Ashley said.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.