Loan Application Defect Index Down 14.6 Percent – NMP Skip to main content

Loan Application Defect Index Down 14.6 Percent

Phil Hall
Sep 30, 2016
The quality of mortgage applications continues to improve, according to the latest Loan Application Defect Index report issued by First American Financial Corporation

The quality of mortgage applications continues to improve, according to the latest Loan Application Defect Index report issued by First American Financial Corporation.

Last month, the First American Loan Application Defect Index remained unchanged from July but was down a significant 14.6 percent from one year ago. The Defect Index for purchase transactions was on a flat month-over-month measurement but was down 10.2 percent compared to a year ago, while the Defect Index for refinance transactions was unchanged compared to July and was 18.1 percent lower than a year ago.

The five states with the highest year-over-year increase in defect frequency last month were Maine (19.2 percent), North Dakota (13.6 percent), Missouri (8.7 percent), Montana (5.3 percent) and Vermont (5.1 percent). St. Louis was the only major metro market with a year-over-year increase in defect frequency, recording a 2.7 percent upturn.

“Based on the newly released American Enterprise Institute and First American National Mortgage Market Index (NMMI), purchase loan demand increased 9.2 percent in the second quarter of 2016 compared to a year ago,” said Mark Fleming, chief economist at First American. “Furthermore, the NMMI shows that the share of transactions involving loans backed by the Federal Housing Administration (FHA) has increased over the last year relative to transactions involving conventional loans. While FHA loans are generally considered to have higher credit risk than conventional loans, according to the Defect Index, conventional loan risk is down 14.6 percent over a year ago, compared with a year-over-year decline of 17.7 percent for transactions involving FHA/VA/USDA loans. In addition, transactions involving FHA/VA/USDA loans are currently 14.5 percent less risky than transactions involving conventional loans. In fact, loan application and defect risk on transactions involving FHA/VA/USDA loans has declined more in recent years than the defect risk for conventional mortgages.”

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