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Loan Application Defect Frequency Declines

Jan 30, 2020
Photo credit: Getty Images/Tomwang112

The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications decreased by 1.5 percent from November to December, according to data from First American Financial Corp. On a year-over-year basis, defects were down by 16 percent.
 
The Defect Index for purchase transactions increased by 1.3 percent compared with the previous month, but it was down 13.3 percent compared with a year ago. The Defect Index for refinance transactions decreased by 3.3 percent compared with previous month and decreased by 26.6 percent compared with a year ago. No state recorded a year-over-year increase in defect frequency, and the five states with the greatest year-over-year decrease in defect frequency are: West Virginia (-42.7 percent), Alaska (-35.1 percent), North Carolina (-31.9 percent), Virginia (-31.5 percent) and Indiana (-35.1 percent).
 
“While overall fraud risk declined in December, the pace of decline was slower than earlier in the year,” said Mark Fleming, chief economist at First American, noting that a “strong sellers’ market may pressure some homebuyers to misrepresent information on a loan application in order to be more competitive when bidding for a home. Couple a supply-constrained market with increased refinance share, and the pace of fraud risk decline slows down.”

 
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Jan 30, 2020
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