First American Reports Loan Application Defect and Fraud Risk Drops

June 28, 2018

The frequency of defects, fraud and misrepresentation in the information submitted in mortgage loan applications decreased by 2.4 percent compared with the previous month, according to First American’s Loan Application Defect Index.

The decrease in defect and fraud risk is happening despite purchase transactions continuing to grow in market share compared to refinances. It’s forecasted that refinance transactions will make up 28 percent of total mortgages originated in 2018 and is forecasted to drop to 23 percent by 2020.

“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 Mark Fleming, First American’s chief economist. “Now the question is, how much lower will it go?”

The Defect Index for purchase transactions decreased by 4.6 percent compared with the previous month, and is down 7.8 percent compared with a year ago. Meanwhile, the frequency of defects, fraud and misrepresentation in the information for refinance transactions remained the same compared with the previous month, and is 4.4 percent higher than a year ago.

May 2018 Highlights

  • The five states with the greatest year-over-year increase in defect frequency are: Arkansas (+12.0 percent), Wyoming (+7.5 percent), New Mexico (+7.5 percent), California (+5.2 percent) and Virginia (+5.2 percent).
  • The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-20.4 percent), Alabama (-17.2 percent), Vermont (-15.3 percent), Minnesota (-14.9 percent) and Louisiana (-14.0 percent).
  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are: 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).
  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the largest year-over-year decrease in defect frequency are: 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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