Mortgage fraud is expected to increase over the next three years as a large number of adjustable rate mortgages (ARMs) reset between now and Q112, according to a recently established quarterly fraud index by Interthinx. Interthinx, a division of Jersey City, NJ-based risk analytics provider ISO, indicated its national fraud index is down 4% from Q109 and up 7% from Q208. The firm said valuation fraud -- the most common type of mortgage fraud -- is up 56%, but occupancy fraud and employment/income fraud declined 25% and 33%, respectively. Interthinx said fraud risk is an indicator of foreclosure risk, meaning areas with high fraud risk are in danger of seeing increased foreclosures within two years. Western states lead the country in fraud risk, as eight out of the top 10 riskiest metropolitan statistical areas (MSA) are located in California. Las Vegas and Reno Nevada are the only non-California cities in the top 10. The Stockton, Calif. MSA topped the list with a fraud index of 257 -- where 100 is considered "normal" -- up nearly 20% from Q109 and up 72.3% from Q208. Write to Austin Kilgore.