The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased in May to levels not seen since 2015, according to First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions.
The frequency of defects, fraud and misrepresentations increased 2.5% in May, according to the Application Defect Index. This is an increase of 13.7% from the year before.
“The Loan Application Defect Index is now reaching levels of risk not seen since 2015,” First American Chief Economist Mark Fleming said. “While risk is growing in both purchase and refinance transactions, it is important to recognize that loan application defect, fraud and misrepresentation risk remains below the peak reached in 2013.”
The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.
The Defect Index rose for both purchase and refinance transactions. Defects in refinance transactions increased 3% from last month and 9.7% from last year. And defects in purchase transactions increased 1.1% monthly and 11.1% from last year.
“Given the heat wave gripping many parts of the country, this month I am highlighting the loan application defect risk ‘heat wave’ frying several markets in the South, according to the Loan Application Defect Index,” Fleming said. “These hot spots for loan defect risk are getting hotter, as the risk in these markets is increasing significantly.”
“The defect risk in each market has increased by a minimum of at least 10 percent in the past year,” he said. “Southern markets are experiencing some of the strongest growth in housing demand, as people seek the lower cost of living compared to northeastern and western markets. Where there’s smoking demand, the flames of defect risk typically follow.”