The frequency of defects, fraud and misrepresentation in mortgage loan applications in August decreased by 3.9 percent compared with July, according to the latest First American Loan Application Defect Index.
Year-over-year, loan defects declined 5.2 percent.
“The overall Defect Index has not been this low since January 2017. However, falling defect risk is a recent phenomenon,” First American Chief
Economist Mark Fleming said in a press release. “In late 2018 and early 2019, overall defect risk rose at a fast pace and continued to do so until reaching a peak in February 2019. So, what sparked the slide in fraud risk in 2019?”
Fleming attributes the decrease in loans defects to fewer natural disasters in 2019, an increase in refinances and a market shifting toward buyers.
“House-buying power gains and improvements in inventory tilt the market toward the buyer. But, what is the connection to fraud risk?” Fleming asked. “Potential homebuyers feel less pressure to misrepresent information on a loan application when strong sellers’ market conditions wane, as the market is less competitive.”
According to the index, the five states with the greatest year-over-year increases in defect frequency in August were Nebraska (+23.2 percent); Iowa (+17.6 percent); South Dakota (+13.9 percent); New York (+12.8 percent); and North Dakota (+8.4 percent).
The five states with the greatest year-over-year decreases in defect frequency in August were Florida (-16.7 percent); Delaware (-13.8 percent); Texas (-13.8 percent); Vermont (-12.5 percent); Maryland (-11.7 percent).
First American said the five markets with the greatest year-over-year increases in defect frequency in August were Buffalo, N.Y. (+8.6 percent); Kansas City, Mo. (+6.8 percent); New York (+5.2 percent); Hartford, Conn. (+3.1 percent); and San Jose, Calif. (+2.9 percent).
The five markets with the greatest year-over-year decreases in defect frequency in August were Houston (-22.7 percent); San Diego (-21.2 percent); Orlando, Fla. (-20.9 percent); Jacksonville, Fla. (-20.2 percent); and Tampa, Fla. (-18.4 percent).