The frequency of defects, fraud and misrepresentation in mortgage loan applications increased by 4.6 percent in January compared with the previous month, according to the First American Loan Application Defect Index.
Year-over-year, the index increased by 9.6 percent. The index for January was down 10.8 percent from the high point of risk in October 2013.
“The [index] for purchase transactions continued its upward trend, increasing 5.6 percent in January compared with the month before, the fifth consecutive month defect risk in purchase transactions has risen,” First American Chief Economist Mark Fleming said in a release.
“While overall fraud risk has been on the rise since July 2018 due partially to the impact of natural disasters, the last two months have experienced acceleration in fraud risk – what could be driving this change?” Fleming asked.
According to the index, the five states with the greatest year-over-year increases in defect frequency in January were West Virginia (+37.5 percent), Maine (+35.8 percent), New York (+35.5 percent), Nebraska (+33.3 percent) and Alaska (+30.7 percent).
The five states with the greatest year-over-year decreases in defect frequency in January were Vermont (-12.8 percent), Florida (-5.1 percent), Arkansas (-3.7 percent), Arizona (-3.6 percent) and Ohio (-1.3 percent), the index reported.
“When home values are rising and the housing market is competitive, more buyers want to enter in the market. As a result, misrepresentation and fraud are more likely on a loan application,” Fleming said. “As homebuyers continue to take advantage of this lower rate environment amid a very competitive market, we can expect fraud risk will continue to trend higher.”
The five markets with the greatest year-over-year increases in defect frequency in January were Richmond, Va. (+33.8 percent); Pittsburgh (+29.2 percent); Buffalo, N.Y. (+26.5 percent); San Jose, Calif. (+26.5 percent); and Hartford, Conn. (+25.4 percent).