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The national mortgage fraud index fell to the lowest level in two years after spiking in the previous quarter, according to data from Interthinx.

The mortgage fraud index dropped to 137 in the third quarter of this year, down 7.7 percent from the previous quarter and 4.5 percent from the same quarter a year ago, the analytics company reported.

The number of metropolitan areas in the very high risk category also declined, falling to 70 in the third quarter from 91 in the second quarter.

Two states—California and Florida—accounted for more than half of the very high risk metros. The number of metro areas considered “very high risk” increased by one in Florida, bringing the state to 17. Meanwhile, California’s total stayed flat at 19. Merced, California, led as the riskiest metro, and California held six out of the top 10 metros most at-risk for fraud.

Florida’s high fraud index value of 206 gave it the lead as the riskiest state. Nevada was a close second with its value of 205. Arizona, New Jersey, and California took the next three spots.

According to Interthinx, the mortgage fraud indices are proven indicators of default and foreclosure activity, so areas with a high risk for fraud are expected to maintain their high foreclosure rates.

“The report shows that even when overall fraud risk is decreasing nationwide, there are still areas of concern, as we see with this quarter’s findings in Florida,” Mike Zwerner, SVP of Interthinx, said in a release. “The report’s actionable intelligence helps lenders pinpoint where additional due diligence may be needed, improves loan quality, reduces repurchase risk, and ultimately helps the economy recover.”

The analytics company tracks four specific types of mortgage fraud: property valuation, identity, occupancy and employment/income.

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Mortgage Fraud Decreases in Q3

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After suddenly jumping 7.7 percent in September, the nation’s delinquency rate fell in October, according to “first look” data from Lender Processing Services (LPS).

The delinquency rate stood at 7.03 percent in October, a decrease of 4.91 percent from September and 7.19 percent from last year. Historically, LPS says the delinquency rate is actually expected to tick up in October due to seasonal effects.

Overall, the number of properties 30 days or more past due or in foreclosure numbered 5.3 million. Of that total, 3.5 million are 30 days or more past due but not in foreclosure, while 1.8 million remain in pre-sale foreclosure inventory. Of the properties that are past due but not in foreclosure, 1.5 million are seriously delinquent or 90 days or more past due.

Foreclosure inventory continued to diminish in October, with the foreclosure presale inventory rate at 3.61 percent, down 6.77 percent from September and 15.99 percent from last year.

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Delinquency Rate Falls

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October marks the 12th consecutive month of monthly home value increases, according to Zillow, which reported a 1.1 percent increase over the month.

Home values were up even higher on an annual basis, climbing 4.7 percent over the year and representing the greatest increase since September 2006.

Home values now stand at $155,400, according to Zillow.

“Those dubious about the durability of the housing recovery will point to the large role that investors are playing in the recovery, or to the large number of foreclosures yet to hit the market, as factors to be wary of,” said Stan Humphries, chief economist at Zillow.

“But the bottom line is that homes are more affordable now than at any time in recent memory, and buyers are seizing this opportunity,” he continued.

Chicago was the only one of the 30 largest metro areas Zillow measures to experience a monthly decline in home values in October.

On an annual basis, four of the 30 metros experienced value declines.

The metros measuring the highest annual value increases in October include Phoenix (22.3 percent), San Jose, California (11.4 percent), Denver (10.4 percent), San Francisco (9.5 percent), and Miami-Ft. Lauderdale (8.8 percent).

Zillow reported another positive sign for the housing market: decreasing foreclosures. Foreclosures declined 0.8 percent in October, and the annual decrease was even greater—1.9 percent.

In October, 5.57 out of every 10,000 homes were in some stage of foreclosure.

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12 Months of Home Value Increases

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While various economic reports hint at improvements in the nation’s economy since the economic crisis was in full swing, improvement is meek and “recovery” seems too strong a word to describe the progress thus far. Federal Reserve Chairman Ben Bernanke calls the pace of recovery “disappointingly slow.”

In a speech before the New York Economic Club Tuesday, Bernanke pointed out some of the lingering headwinds preventing the economy from more momentous progress.

Significant among these headwinds is the housing sector itself.

To make his point, Bernanke quoted a few notable statistics.

“House prices declined almost one-third nationally from 2006 until early this year, construction of single-family homes fell two-thirds, and the number of construction jobs decreased by nearly one-third,” he said.

Home sales, prices, and construction have shown some forward movement this year, which Bernanke said is “encouraging” and expects to see residential investment become a “source of economic growth and new jobs over the next couple of years.”

However, a “powerful housing recovery” is still being prevented, and one of those obstacles is tight lending, according to Bernanke.

Outside the housing market, the credit and capital markets serve as another financial headwind for the nation’s economy. In particular, the financial situation in Europe has been and continues to be a cause of stress and uncertainty.

The third financial headwind Bernanke mentioned is U.S. fiscal policy. This concern can be divided into three major categories – the fiscal cliff, the federal debt limit, and monetary policy.

“Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy,” Bernanke said.

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Recovery 'Disappointingly Slow'

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Given improvements seen in housing, Fannie Maerevised its housing forecast higher for 2012 and 2013 in its November economic outlook report.

According to the GSE, the fundamentals are set in place for a “solid” housing recovery, such as low interest rates, rising prices, and a labor market that’s healing.

Considering these developments in housing, the GSE’s Economic & Strategic Research Group anticipates single-family housing starts will jump 25 percent this year, then rise by another 22 percent in 2013.

Existing-home sales should also rise and see a 9 percent increase in 2012 and a 4 percent gain in 2013.

When combining new and existing-home sales, the increase is expected to be 10 percent this year and an additional 6 percent in 2013. And if there’s any risk in this forecast, Fannie Mae says it’s that housing demand may actually result in stronger housing activity than currently anticipated.

Based on the Federal Housing Finance Agency’s purchase-only index, home prices should see an increase of 2.9 percent for the remainder of 2012 and a 1.6 percent increase in 2013.

Fannie Mae was also optimistic about originations and expects originations to reach $1.81 trillion in 2012 and $1.54 trillion in 2013. The refinance share of originations should rise to 71 percent in 2012 before dropping to 62 percent in 2013, according to the report.

The 30-year fixed-rate mortgage is expected to stay low and average 3.5 percent in 2013. 
The GSE also expects the Federal Reserve to continue buying $40 billion in mortgage-backed securities (MBS) each month through 2013.

Unemployment is expected to dip further into 2013 and fall to 7.6 percent. GDP is expected to grow at a rate of 2.2 percent in 2013.

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Fannie Mae Releases Forecast