Mortgage fraud is on the rise in Southern California, reports the Los Angeles Times. More than 4,000 reports of "suspicious activity" were filed since September 2005. That doubles the previous year's numbers. The main cause of the big uptick, say authorities, is that the market is flat and houses are hard to sell. In a booming market, fraud goes unnoticed because borrowers who overstate their income or otherwise deceive lenders can usually unload the house and pay off their debts without too much trouble. As prices stagnate, that's much more difficult to do. Foreclosures will feed on themselves if more houses are dumped on a bearish market. And, while we don't have the same stratospheric prices here, the big run-up has probably led lots of otherwise ordinary folks to exaggerate their assets or income. And we could have the same accelerating effect from foreclosures that is feared in and around Los Angeles. In some ways, lenders have done it to themselves, though. In California, the rapid expansion of "no-doc" loans has created a problem. Lenders ignored traditional checks in return for higher interest but now they could find a much higher default rate. And the same could happen in Clark County with the extraordinary number of interest only and ARM mortgages that financed our recent boom, not to mention the small speculators looking to flip houses. Still, the FBI admits it rarely if ever prosecutes small borrowers. Only professionals who are systematically defrauding lenders ever make it to court.