First American Financial Corp., a global provider of title insurance, settlement services and risk solutions for real estate transactions, released the First American Loan Application Defect Index for June 2015, which estimates the frequency of defects in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography, and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category including amortization type, lien position, loan purpose, property and transaction types, as well as state and market-level comparisons of levels of mortgage loan defects.
June 2015 loan application defect index
The Defect Index fell 5.8 percent in June as compared with May and decreased by 11 percent as compared with June 2014, and is down 21.4 percent from the high point of risk in September 2013. The Defect Index improved month-over-month, but has shown a pronounced increase year-to-date of 5.2 percent. The frequency of loan application defects had shown a consistent downward trend since the peak in 2013 until the beginning of this year. Refinance transactions have shown some of the biggest improvements, with estimated defect incidence down 5.5 percent month-over-month and 14.8 percent over a year ago. Adjustable-rate mortgages, a loan type with a consistently higher level of application defects, are also showing significant recent improvement with a 3.6 percent decline from last month and a 13.1 percent decline year-over-year.
“It’s reassuring to see the national mortgage loan defect trend, which had been increasing since the beginning of 2015, now partially reversing. However, the geographic distribution of defect frequency continues to concentrate in key markets in the south, particularly in Florida and Texas, as well as in the Northeast and upper Midwest,” Chief Economist at First American Mark Fleming said. “Most major metropolitan areas in Florida and Texas have defect frequency levels above the current national level.”
June 2015 state highlights
· The five states with the highest month-over-month increase in defect incidence are: South Dakota (+3.7 percent), Alaska (+2.7 percent), the District of Columbia (+2.4 percent), Texas (+0.0 percent) and Virginia (-1.3 percent).
· The five states with the highest month-over-month decrease in defect incidence are: Montana (-15.5 percent), Vermont (-12.4 percent), Wyoming (-12.3 percent), Massachusetts (-11.9 percent) and Maine (-11.9 percent).
June 2015 local market highlights
· Among the largest 100 Core Based Statistical Areas (CBSAs), the five markets with the highest quarter-over-quarter increase in defect incidence are: Louisville, Ky. (+31.7 percent); Austin, Texas (+22.4 percent); Houston (+22.2 percent); McAllen, Texas (+21.6 percent) and Grand Rapids, Mich. (+20.0 percent).
· Among the largest 100 CBSAs, the five markets with the highest quarter-over-quarter decrease in defect incidence are: Rochester, N.Y. (-22.9 percent); Jackson, Miss. (-18.8 percent); Palm Bay, Fla. (-9.5 percent); Little Rock, Ark. (-8.5 percent) and Birmingham, Ala. (-8.4 percent)
Market close up: Houston’s oil dependency increases stress
Over the past year, the Loan Application Defect Index for Houston is up 5.3 percent. Only two markets (Austin, Texas and Detroit) have increased more in the last year. Houston and other U.S. energy-related markets in Texas and the Dakotas deserve watching in the coming months, as fluctuations in global energy markets create stressful local economic conditions.
“This month, we focus on Houston because of the regularly cited concern that it is susceptible to the stress of low global oil prices. In fact, the recent announcement of a nuclear agreement with Iran caused oil prices to fall and raised concerns for U.S. shale production,” Fleming said. “Desperate times call for desperate measures, and to the extent that economic stress is impacting some households in Houston, the Defect Index is reflecting this stress.”