Loan Application Defect, Fraud Risk Drops as Home Purchases Improve Share

Mike Sorohan msorohan@mba.org

July 02, 2018


First American Financial Corp., Santa Ana, Calif., said frequency of defects, fraudulence and misrepresentation in information submitted in mortgage loan applications decreased by 2.4 percent in May from a month ago and by 3.6 percent from a year ago.

The company's monthly Loan Application Defect Index has now fallen by 21.6 percent from the high point of risk in October 2013. The report noted while the index for refinance transactions remained unchanged in May from April and down by 4.4 percent from a year ago, the index for purchase transactions fell by 4.6 percent from April and by nearly 8 percent from a year ago.

"It's likely that all of the investment in more digitized, automated and efficient mortgage manufacturing and underwriting technology that's been made in recent years is beginning to pay off," said First American Chief Economist Mark Fleming. "Now the question is, how much lower will it go?"

The report said states with the greatest year-over-year increase in defect frequency were Arkansas (12.0 percent), Wyoming (7.5 percent), New Mexico (7.5 percent), California (5.2 percent) and Virginia (5.2 percent). States with the greatest year-over-year decrease were South Carolina (-20.4 percent), Alabama (-17.2 percent), Vermont (-15.3 percent), Minnesota (-14.9 percent) and Louisiana (-14.0 percent).

Among the top 50 U.S. metros, markets with the greatest year-over-year increase in defect frequency were Virginia Beach, Va. (+20.0 percent), Los Angeles (+15.9 percent), Orlando, Fla. (+13.4 percent), San Diego (+12.7 percent) and Memphis, Tenn. (+8.0 percent. Markets with the largest year-over-year decrease in defect frequency were Birmingham, Ala. (-22.4 percent), Austin, Texas (-19.3 percent), Pittsburgh (-16.7 percent), Raleigh, N.C. (-16.3 percent) and Minneapolis (-16.3 percent).

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