While overall mortgage fraud reports are down, California continues to be among the worst states in terms of such crime – trailing only New York and Florida for fraud on loans originated in 2010, according to a report released Monday.

The annual report from the Lexis-Nexis Mortgage Asset Research Institute highlighted the challenges facing states like California as they grapple with the ongoing aftermath of the subprime mortgage crisis.

"Fraud is and will always be a crime of opportunity, especially in times of desperation," the report said.

The annual report is based on verifiable cases of fraud reported to the institute's Mortgage Industry Data Exchange, or MIDEX. The exchange is a private data-sharing tool for mortgage companies, banks and other real estate industry players. These players report cases of fraud to the exchange and in turn use the database to do background checks on potential business partners.

The overall number of mortgage fraud reports to the institute dropped 41 percent from 2009 to 2010, according to the research and data firm. That figure, however, isn't cause for celebration just yet. The drop in real estate activity – sales and mortgage loans – likely contributed to the decline. Plus, banks and other industry players are increasingly focusing on recovery and loss mitigation as opposed to detecting new fraud, according to the report.

The state ranking is based on the number of fraud reports for a specific state compared with the amount of real estate activity in that state. California had nearly two and a half times as many fraud reports as it should have had, given its share of the overall market of loans originated in 2010, according to the report.

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