Loan Defects Down From Last Year

The frequency of defects, fraudulence and misrepresentation in the information submitted in October for mortgage applications was down by 4.8 percent from one year ago, according to data from First American Financial Corp. On a month-over-month measurement, loan defects were up by 1.3 percent from September.

 

The First American Loan Application Defect Index for refinance transactions increased by 1.4 percent from September to October and was up by 2.9 percent compared with a year ago. The Defect Index for purchase transactions increased by 2.5 percent compared with the previous month, but it was also 8.9 percent lower from the previous year.

 

Mark Fleming, Chief Economist at First American, noted there were “regions with the potential for higher defect risk due to the impact from natural disasters: specifically, the communities impacted by recent wildfires in California.” Fleming added that “natural disasters create the potential and opportunity for significant misrepresentation of collateral condition. In the aftermath of the December 2017 Thomas Fire in Ventura and Santa Barbara counties, mortgage defect, fraud and misrepresentation risk, as measured by the Defect Index, increased 10 percent in one month in the Oxnard-Thousand Oaks-Ventura metropolitan area. Fraud and misrepresentation risk remained elevated for five months after the wildfire, before trending down again. Defect, fraud and misrepresentation risk in the Oxnard metropolitan area, which had been declining prior to the Thomas Fire, has yet to return to pre-wildfire levels.”

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