Loan Defects and Fraud Continue to Pile Up
The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage applications saw a 2.5 percent increase from April to May 2017 and a 13.7 percent spike from one year earlier, according to new data from the First American Loan Application Defect Index.
The Defect Index for refinance transactions saw a three percent month-over-month rise and a 9.7 percent year-over-year upswing in May. The Defect Index for purchase transactions in May increased 1.1 percent compared to the previous month and 11.1 percent hike from the previous year.
“The Loan Application Defect Index is now reaching levels of risk not seen since 2015,” said Mark Fleming, chief economist at First American. “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. Purchase transaction risk is 13 percent below the peak and refinance transaction risk is 32 percent below the peak. The purchase-pivot in the housing market continues to add fuel to the fire of the overall level of application, defect and fraud risk.”