First American: Mortgage defect risk fell 4.2% in April

Declining mortgage rates led to an increase in lower-risk refinance transactions

In April, the nation’s mortgage defect risk edged down as interest rates continued to decline, according to the latest First American Loan Application Defect Index.

According to the report, the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage applications decreased by 4.2% from the previous month.

That being said, America’s defect risk was still 11% higher than the same time period in 2018.

“The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications declined 4.2% compared to last month,” First American Chief Economist Mark Fleming said. “Notably, this marks the first month-over-month decline since July 2018, thanks to lower mortgage rates.”

Tumbling mortgage rates not only contributed to an increase in inventory, but it also reduced the competitive pressure on the housing market, which lead to an increase in lower-risk refinance transactions, according to Fleming.

In fact, although the Defect Index for refinance transactions rose a whopping 16.9% from 2018, they fell by 3.5% from March. Additionally, the Defect Index for purchase transactions dropped 4% from March but still remained 10.3% up from the same time period a year ago.

“The mix of refinance and purchase activity fluctuated within the month of April. Refinance activity increased in the first half of the month as mortgage rates declined,” Fleming said “However, lower mortgage rates also fueled an increase in purchase transactions, as buyers took advantage of their increased house-buying power.”

NOTE: First American’s Loan Application Defect Index measures the frequency of which defect indicators are identified. The index is benchmarked to a value of 100 in January 2011, meaning all index values are interpreted as the percentage change in defect frequency relative to that time, according to the company.

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