New research shows mortgage fraud is on the rise, prompting lenders to become more diligent in their loan application reviews.

Reports of possible fraud on loan applications processed by Kroll Factual Data rose 1.1% between the second and third quarters of 2012.

In certain metropolitan statistical areas (MSAs) of the country, the increase from the second quarter to the third quarter rose as much as 50%.

Kroll examined MSAs with at least 1,000 applications per quarter. Using the company's proprietary risk analysis and verifications engines, Kroll isolated files that contained suspicious activity.

"While fraud alerts declined in some MSAs, these declines were offset by significant increases in others. This spike in potential fraud is troubling, coming at the same time the mortgage industry is beginning to turn the corner," said Rod Bazzani, president of Kroll Factual Data.

He added, "More importantly, the fact that red flags are rising in every area of the country highlights the continued need for lenders to remain vigilant against fraud. In addition, the new CFPB restrictions—whose ultimate goal is to ensure a borrower can repay a mortgage over its entire term—raise the stakes for lenders to catch fraud or inadvertent errors that might compromise lending decisions or risk buy-back requests."

Flint, Mich. led the way, with potential fraud activity growing by 50.32%. The city is followed by Columbia, Mo., where potential fraud activity edged up by 29.77%; and Lancaster, Pa., where suspicious reports rose by 28.83%.

Click on the chart to view the top 10 MSAs increases in potential fraud.

Despite the general upward trend of mortgage-related fraud, there were MSAs with significant declines in potential fraud.

Champaign-Urbana, Ill., led the way with a 19.55% drop; followed by Bridgeport-Milford, Conn. (18.59% decline); and San Francisco-Oakland, Calif. (down 18.37%).

Click on the chart to view the 10 MSAs decreases in potential fraud.

Kroll offers comprehensive information and analytical tools to address major components of the lending sector to combat fraud.