Fraud is helping to explain why mortgage defaults and foreclosures are rocking financial institutions, Wall Street and the economy. The Federal Bureau of Investigation says the share of its white-collar agents and analysts devoted to prosecuting mortgage fraud has risen to 28%, up from 7% in 2003.

Suspicious Activity Reports, which many lenders are required to file with the Treasury Department’s Financial Crimes Enforcement Network when they suspect fraud, shot up nearly 700% between 2000 and 2006. In some neighborhoods, the fraud scheme itself may have artificially raised values. Another explanation is that the appraisal market is fiercely competitive. Experts say some appraisers may offer inflated values in exchange for their standard fee of several hundred dollars — a strategy that can win business without exposing an appraiser to charges of fraud.

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