New Data Reaffirms Stronger Mortgage Quality

Home loan quality is continuing its winning streak, according to the latest Loan Application Defect Index report issued by First American Financial Corporation.

During July, First American’s Loan Application Defect Index dropped by 2.8 percent from June and plummeted 16.7 percent when compared with July 2015. The Defect Index for refinance transactions dipped 1.7 percent on a month-over-month basis and fell 18.1 percent on a year-over-year measurement. And the Defect Index for purchase transactions declined 1.3 percent month-over-month while sliding 13.2 percent year-over-year.

Among the states, Maine and North Dakota experienced double-digit year-over-year increases in defect frequency with 16.7 percent and 11.9 percent, respectively. The five states with the highest year-over-year decrease in defect frequency were: Michigan (-33 percent), Florida (-24.5 percent), New Mexico (-21 percent), Connecticut (-20.9 percent), and New Hampshire (-20.3 percent). The only market with a year-over-year increase in defect frequency was St. Louis (up 4.1 percent), while Detroit had the highest year-over-year decrease with a 37 percent drop.

“The benefits in compliant loan production processes are becoming more clearly evident, particularly for refinance transactions, in the big declines we are observing in loan application and mortgage defect risk,” said Mark Fleming, chief economist at First American. “Refinance activity, fueled by historically low mortgage rates, combined with improved loan manufacturing processes are resulting in higher quality loan applications with the lowest level of defects and misrepresentation that we have seen in recent history.”