The frequency of defects, fraud and misrepresentation in mortgage loan applications increased during March, according to First American Financial Corp. (FAF).
FAF’s Loan Application Defect Index for March found defects, fraudulence and misrepresentation in mortgage loan applications increased 3.9 percent in March 2017 compared with February 2017. The year-over-year increase also was 3.9 percent. However, the index found fraud and misrepresentation in mortgage loan applications in March was down 22.5 percent from the high point of risk in October 2013.
“This month, the Loan Application Defect Index continued to trend upward as the risk on refinance and purchase transactions both increased compared to a month ago,” First American Chief Economist Mark Fleming said in a press release. “After four consecutive months of increased defect risk, it’s fair to call this a trend.”
“We are experiencing one of the strongest sellers’ markets in recent memory and the ‘speed-buying’ that is required for homebuyers to make an offer and win a bid for homes they like may be contributing to the increase in defect, misrepresentation and fraud risk that we are observing,” Fleming added.
The index found that fraud and misrepresentation in mortgage loan application increased 3.3 percent for refinance transactions and 2.4 percent for purchase transactions during March.
During March, the markets with the highest defect risk were in the South – McAllen, Texas; Charleston, S.C.; Tampa, Fla.; Knoxville, Tenn.; and Baton Rouge, La.
“Defect, fraud and misrepresentation risk is increasingly becoming a regional phenomenon. The risk is concentrating in attractive local markets where housing demand is the strongest, primarily in the South,” Fleming said. “The South may not be so charming anymore if you manage loan fraud and misrepresentation risk.”
States with the greatest increases in defect frequency were Wyoming (+42.4 percent), South Dakota (+37.5 percent), North Dakota (+35.8 percent), Mississippi (+28.6 percent) and West Virginia (+26.8 percent).
States with the greatest decreases in defect frequency were Connecticut (-8.9 percent), Michigan (-6.1 percent), Oklahoma (-3.3 percent), Delaware (-3.0 percent) and Washington (-2.5 percent).