Defect Risk Index Down for the First Time in Eight Months

The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications during April decreased by 4.2 percent from March, according to new data from First American Financial Corp.’s Loan Application Defect Index This represents the first time in eight months that the index recorded a month-over-month decline. However, the Defect Index was also up by 11 percent from one year earlier.

 

During April, the Defect Index for refinance transactions decreased by 3.5 percent compared with previous month but rose 16.9 percent compared with one year earlier. The Defect Index for purchase transactions decreased by 4 percent compared with the previous month and was 10.3 percent higher than the April 2018 level.

 

“Decreasing mortgage rates contributed to an increase in inventory, reducing the competitive pressure on the housing market, as well as contributing to an increase in lower-risk refinance transactions,” said Mark Fleming, Chief Economist at First American. “The two competing trends that resulted in a flat fraud risk last month were the increasing share of less risky refinance transactions working to decrease overall fraud risk, and the continuation of the hot sellers’ market, motivating buyers to misrepresent information in order to qualify for a bigger mortgage and increase overall fraud risk.”