The frequency of defects, fraud and misrepresentation submitted in mortgage loan applications during May reached its highest level since 2015, according to First American Financial Corp (FAF).
FAF’s Loan Application Defect Index increased 2.5 percent in May 2017 compared with the previous month, and rose 13.7 percent year-over-year. The defect index for refinance transactions increased 3 percent month-over-month, and 9.7 percent from one year ago. The index for purchases increased 1.1 percent compared to last month, and rose 11.1 percent compared to a year ago.
“The Loan Application Defect Index is now reaching levels of risk not seen since 2015,” First American Chief Economist Mark Fleming said in a release. “While risk is growing in both purchase and refinance transactions, it is important to recognize that loan application defect, fraud and misrepresentation risk remains below the peak reached in 2013.”
“Purchase transaction risk is13 percent below the peak and refinance transaction risk is 32 percent below the peak. The purchase-pivot in the housing market continues to add fuel to the fire of the overall level of application, defect and fraud risk,” Fleming added.
The frequency of defects, fraud and misrepresentation submitted in mortgage loan applications during May saw significant increases in several markets in the South. The report said the index increased 10.4 percent in McAllen, Texas; 12.4 percent in Charleston, S.C.; 18.1 percent in Birmingham, Ala.; 22.5 percent in Knoxville, Tenn.; and 35.2 percent in Augusta, Ga.
“These hot spots for loan defect risk are getting hotter, as the risk in these markets is increasing significantly. The defect risk in each market has increased by a minimum of at least 10 percent in the past year,” Fleming said.
“Southern markets are experiencing some of the strongest growth in housing demand, as people seek the lower cost of living compared to northeastern and western markets. Where there’s smoking demand, the flames of defect risk typically follow,” Fleming added.
No state had a year-over-year percentage decrease in fraudulent mortgage applications during May. States with the highest increases in defect frequency were South Dakota (+56.4 percent); North Dakota (+50 percent); Wyoming (+40.9 percent); West Virginia (+35.6 percent); and Iowa (+34.4 percent).
The metropolitan areas with the largest year-over-year increases in defects in May were Raleigh, N.C. (+39.4 percent); Tampa, Fla. (+21.8 percent); Buffalo, N.Y. (+21.3 percent); New Orleans (+20.5 percent); and Charlotte, N.C. (+19.2 percent).
The two markets with year-over-year decreases in defects during May were Oklahoma City (-4.7 percent) and Milwaukee (-1.3 percent).