Mortgage fraud risk decreased slightly in the second quarter of 2010, but is still substantially higher than it was a year ago, according to a quarterly Mortgage Fraud Risk Report released Tuesday by Interthinx. The risk research and analytics firm reported the National Mortgage Fraud Risk Index for Q210 at 145, down 3% from last quarter, but up 12% from the same period last year. The index is calculated based on the frequency that indicators of fraudulent activity, such as property mis-valuation, employment misrepresentation or concurrent closing schemes, are detected in mortgage applications processed by Interthinx. A value of 100 on any given index represents the normal level of fraud risk. Lewis Ranieri of investment advisory firm Ranieri & Co said yesterday at the Future of Housing Fiance conference at the US Treasury that the inability to prevent mortgage fraud is a large source of investor trepidation in the current market. Nevada and Arizona are currently the two states with the highest mortgage fraud risk at indices of 239 and 238, respectively. California (199), Rhode Island (196) and Florida (191) followed suit to round out the top five most risky states for mortgage fraud. The states with the lowest mortgage fraud risk indices are, in descending order, Mississippi, South Dakota, West Virginia, Kansas and Maine. The five lowest ranking states have an index less than half the national average. Interthinx reported that most metropolitan statistical areas (MSAs) in California, Florida, Colorado, Michigan, Ohio and Nevada are of “very high risk.” The Washington D.C., Minneapolis-St. Paul, Atlanta and Memphis MSAs remained in the “very high risk” category quarter-over-quarter, while Bend, OR, which moved to a lower risk category in Q110, rejoined the category. The Trenton (NJ), Worcester (MA), Providence (RI), Medford (OR) and Nashville (TN) MSAs are recorded as “very high risk” for the first time. Modesto, CA  topped the MSA fraud risk index with a score of 285, down 11.9% from Q110 and up 16.5% from Q209. This is the third consecutive quarter that Modesto has had this ranking. Stockton, CA MSA came in second at 278, down 4.7% from last quarter and up 8.2% from last year. Both MSAs have been in the top three positions for the last five consecutive quarters. Seven of the ten MSAs are located in California with Cape Coral-Ft. Myers, FL, Las Vegas-Paradise, NV and Phoenix-Mesa-Scottsdale, AZ joining them. Six of Q210 top 10 MSAs with the highest mortgage fraud risk held a spot in the top 10 a year ago. All of them were in the top 20 a year ago. The ten zip codes with the highest index of mortgage fraud risk reported by Interthinx, include tiny towns such as Los Banos, CA (second at an index of 498), Lehigh Acres, FL (fourth with an index of 490), and El Mirage, AZ (fifth at an index of 415). The first and third zip codes (indices of 500 and 498 respectively) are both in Chicago, IL where the overall index is less than the national value 140. Interthinx tracks four type-specific fraud risk indices. The Property Valuation Fraud Index decreased 4.3% quarter-over-quarter, yet rose 20.5% year-over-year. The Modesto, CA MSA ranked first in this index with a score of 739, down 12% from Q110, but up 22.5% from Q209. The Identity Fraud Risk Index increased to 180, up 9.9% from last quarter and 32.6% from last year. The Cleveland MSA topped out the index at 367, a 25.1% increase quarter-over-quarter and a 177.7% increase year-over-year. The Occupancy Fraud Risk Index decreased to 71, down 9.3% from Q110 and down 6% from Q209. Miami-Fort Lauderdale lead the index at 143, down 2.6% from last quarter and up 14.5% from last year. The Employment/Income Fraud Risk Index decreased slightly to 85, down 3.4% from Q110 and up 8% from the same time last year. The Santa Barbara MSA came in first in this index at 152, a 22.2% increase from last quarter and a 64.7% increase from a year ago. Write to Christine Ricciardi.