For the seventh consecutive month, the percentage of mortgage loan applications with defects, fraud and misrepresentation increased, according to First American Financial Corp.’s defect index.
The percentage of mortgage applications submitted with defects, fraud and misrepresentation increased 1.2 percent in June 2017 compared with May 2017. Year-over-year, that percentage jumped 16.7 percent.
“Following seven straight months of increases, the Loan Application Defect Index is now at the same level as almost two years ago in July 2015,” First American Chief Economist Mark Fleming said in a release.
“The market shift toward more purchase mortgages, coupled with rising rates and tight inventory, is generating the consistent upward trend in defect risk. Purchase transactions are inherently more at risk of defects, fraud and misrepresentation, and the pressures resulting from one of the strongest sellers’ markets in recent memory compounds the risk of an error on a loan application,” Fleming added.
According to the defect index, the five markets with the greatest increase in defect frequency were Raleigh, N.C.; Charlotte, N.C.; New Orleans; Tampa, Fla.; and San Jose, Calif. The markets with the highest levels of risk are Birmingham, Ala.; New Orleans; Raleigh, N.C.; Miami; and Tampa, Fla.
“Combining the levels of risk and rate of change rankings of loan application defect, fraud and misrepresentation risk reveals that major markets in North Carolina and Florida are high risk and the risk in these markets continues to grow at a strong pace,” Fleming said.