California is the state with the most costly mortgage fraud, a mortgage industry fraud index reported Tuesday, despite the national fraud level being down quarter-over-quarter.

The Third-Quarter 2011 Mortgage Fraud Index, reported by MortgageDaily.com, shows activity on civil and criminal cases. This quarter the index reported that victim lenders were deceived by fraudulent documentation or inflated appraisals. In California, mortgage fraud totaled $204 million, the report states, putting it at the highest level of fraud nationwide.

“Many of the recently opened cases were uncovered by mortgage bankers who were forced to repurchase the loans,” said Mortgage Daily founder and Publisher Sam Garcia.The index fell 7% from the second quarter but climbed 16% from a year earlier. On a dollar basis, the aggregate balance of mortgage fraud cases was $1.3 billion—lower than the second quarter and the third-quarter 2010.

On a state index basis, Florida has the highest level, with California ranking No. 2 in terms of mortgage fraud prevalence. New York also saw an increase in fraud during the quarter.

Written by Elizabeth Ecker