The frequency of defects, fraud and misrepresentation in mortgage loan applications during November increased by 2.5 percent compared with the previous month, according to First American’s Loan Application Defect Index.
Year-over-year, the index decreased by 2.4 percent in November, and was down 20.5 percent from the high point of risk in October 2013, according to First American.
“The staggering scope of the damage and loss of life from California’s early November wildfires continues to grow. The Camp Fire in Butte County, the deadliest U.S. wildfire in a century, impacted 16,735 properties worth $3.8 billion,” First American Chief Economist Mark Fleming said in a release.
“Historical data indicates that natural disasters and loan application defect risk go hand-in-hand, as they increase the potential for misrepresentation of collateral condition,” Fleming added. “Last month, we discussed the potential implications of the recent California wildfires on mortgage fraud risk, and after examining the first month of data, it appears historical trends are playing out.”
According to First American, The Defect Index for refinance transactions increased by 2.8 percent in November compared with the previous month, and jumped 5.8 percent compared with a year ago. The Defect Index for purchase transactions increased by 2.4 percent compared with the previous month, and declined 7.7 percent compared with a year ago.
“Following the Woolsey and Camp fires, defect and fraud risk has increased in all three of the affected metropolitan areas,” Fleming said. “Fraud and defect risk increased the most in Oxnard, rising 6 percent compared to October, followed by Los Angeles (3.3 percent) and San Francisco (2.8 percent). Before the November increase, fraud and defect risk was relatively flat in all three metropolitan areas.
“The tragic impacts of the Woolsey and Camp fires continue to be assessed and, unfortunately, appear to include rising fraud and defect risk,” Fleming continued. “Given historical trends, the question is not if defect risk will continue to increase, but when will it stop.”
According to the index, the five states with the greatest year-over-year increases in defect frequency in November were Alaska (+19.5 percent); Hawaii (+15.4 percent); West Virginia (+13.3 percent); Maine (+12.5 percent); and New York (+11.7 percent).
The five states with the greatest year-over-year decreases in defect frequency in November were Vermont (-24 percent); Minnesota (-15.5 percent); Florida (-14.1 percent); Arizona (-14.1 percent); and Arkansas (-12.4 percent).