UPDATE 1-NY state foreclosures rise, most in NY City area

NEW YORK, July 31 (Reuters) - Home foreclosures in New York state rose 14 percent in the first quarter from the 2007 fourth quarter, with 82 percent of the foreclosures concentrated in the New York City metropolitan area, according to a report released on Thursday.

In addition, 59 percent of the foreclosures involved subprime borrowers, with African-American and Hispanic communities twice as likely to take out subprime mortgages, according to the report by the New York State Commission of Investigation.

Two New York City boroughs, Brooklyn and Queens, accounted for 36 percent of all foreclosures, and two counties in nearby suburban Long Island, Nassau and Suffolk, accounted for 24 percent, the study found.

Mortgage fraud occurred most often in New York City, Long Island, and Monroe County, in the northwest part of the state near Rochester, the study said.

The commission, whose members are appointed by the governor, is one of several state agencies that probe fraud and corruption.

Because federal laws often supersede state banking laws, New York's consumer protection rules have too little impact, the report said.

"The principle focus of this investigation was subprime mortgage fraud in New York State, but it was impossible in conducting this investigation not to recoil at the extremely worrisome statistics in the subprime lending market in general," said Commission Chairman Alfred Lerner in a statement.

The commission said it proposed remedies including banning the same person from serving as both the real estate and mortgage broker in the same deal and tightening state banking and real estate rules "to combat mortgage scammers." (Editing by Leslie Adler)