California Wildfires Blamed for Higher Loan Defect Risks
December 26, 2018
The frequency of defects, fraudulence and misrepresentation mortgage applications increased by 2.5 percent from October to November, according to the latest Loan Application Defect Index data from First American Financial Corp. On a year-over-year basis, the Defect Index was down by 2.4 percent last month.
The Defect Index for refinance transactions in November increased by 2.8 percent from October and was up by 5.8 percent compared to November 2017. The Defect Index for purchase transactions increased by 2.4 percent compared with the previous month, but it was down by 7.7 percent from one year earlier.
Mark Fleming, Chief Economist at First American, noted the recent California wildfires played a major role in the Defect Index’s increases.
“The staggering scope of the damage and loss of life from California’s early November wildfires continues to grow,” Fleming said. Historical data indicates that natural disasters and loan application defect risk go hand-in-hand, as they increase the potential for misrepresentation of collateral condition. Last month, we discussed the potential implications of the recent California wildfires on mortgage fraud risk, and after examining the first month of data, it appears historical trends are playing out. Following the Woolsey and Camp fires, defect and fraud risk has increased in all three of the affected metropolitan areas. Fraud and defect risk increased the most in Oxnard, rising 6.0 percent compared to October, followed by Los Angeles (3.3 percent) and San Francisco (2.8 percent). Before the November increase, fraud and defect risk was relatively flat in all three metropolitan areas.”
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