The frequency of defects, fraud and misrepresentation in mortgage loan applications had a year-over-year increase of 15.9 percent in March, according to the First American Loan Application Defect Index.
The index remained unchanged compared with February 2019, and declined 6.8 percent from the high point of risk in October 2013.
“Loan application defect risk for purchase transactions continued its upward trend in March, increasing 1 percent month-over-month, according to the Loan Application Defect Index. Defect risk for purchase transactions has risen for seven consecutive months, however, the pace of growth slowed to its lowest point over that time span,” First American Chief Economist Mark Fleming said in a release.
“Nationally, defect risk continued to surge in early 2019 and in February reached its highest point since 2013,” Fleming said. “Suddenly in March, the acceleration stopped. Two recent trends influenced defect risk in opposite directions and drove the moderation in defect risk.”
Fleming pointed to the rising share of refinances and the continuation of a sellers’ market as the trends influencing risk.
“The two competing trends stabilized the risk of defects, fraud and misrepresentation in March. Sellers’ market conditions increased fraud risk, but the rising share of lower-risk refinance transactions reduced fraud risk,” Fleming said. “The tug-of-war between the hot sellers’ market and the mix of refinance and purchase transactions will heavily influence the direction of fraud risk in the months ahead.”
According to the index, the five states with the largest year-over-year increases in defect frequency in March were Nebraska (+41.9 percent); New York (+41.3 percent); Iowa (+39.5 percent); West Virginia (+37.8 percent); and Maine (+36.2 percent). Arkansas (-0.9 percent) was the only state with a year-over-year decrease in defect frequency in March.
First American said the five metropolitan markets with the greatest year-over-year increases in defect frequency in March were Buffalo, N.Y. (+40.6 percent); Richmond, Va. (+40.3 percent); Pittsburgh (+33.8 percent); Raleigh, N.C. (+32.1 percent); and Cincinnati (+31.6 percent).
The three metropolitan markets with year-over-year decreases in defect frequency were Jacksonville, Fla. (-9.4 percent); Orlando, Fla. (-6.4 percent); and Houston (-5.3 percent).