Loan Defect Index Up 20.3 Percent in One Year

The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 20.3 percent year-over-year, according to the new Defect Index report from First American Financial Corp. On a month-over-month measure, the Defect Index remained unchanged.

 

The Defect Index for refinance transactions remained unchanged compared to the previous month, although it was 21.1 percent higher than a year earlier. The Defect Index for purchase transactions was also unchanged from November and was up 12.3 percent compared with December 2016.

 

“Last month, I noted that defect, fraud and misrepresentation risk had finally stabilized after a significant, seven-month-long rise,” said Mark Fleming, Chief Economist at First American. “Much of the elevated risk can be attributed to an increase in the share of purchase mortgage transactions, which tend to carry more risk. It’s possible that all economists agree, a rarity, that mortgage rates will increase in 2018, which should increase the market share of purchase mortgage transactions, putting upward pressure on the overall risk of defect, fraud and misrepresentation. As the benefit of refinancing a mortgage declines for many consumers, the share of refinance loan transactions will likely decrease and the share of purchase transactions will increase. We have seen this before, in 2013, as mortgage rates rise, so does overall defect, fraud and misrepresentation risk.” 

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