The frequency of defects, fraudulence and misrepresentation in mortgage applications increased by 1.3 percent during August compared with the previous month, according to the First American Loan Application Defect Index.
According to the index, the frequency of defects, fraudulence and misrepresentation in mortgage applications during August decreased year-over-year by 8.3 percent, and is down 24.5 percent from the high point of risk in October 2013.
“Following seven straight months of declining defect risk, the Loan Application Defect Index for purchase transactions remained the same in August compared with the month before,” First American Chief Economist Mark Fleming said in a release. “Year-over-year, the defect index for purchase transactions decreased 13.2 percent as compared to August 2017. The Defect Index for refinance transactions is the same as the previous month and is 1.4 percent lower than a year ago.”
Fleming said certain regions of the country have a higher potential for defect risk because of Hurricane Florence.
“The expected damage to housing is staggering. Based on the National Hurricane Center storm surge estimate, we expect that more than $13 billion worth of homes, according to estimates of current market value, are likely to be flooded with at least a foot of water,” Fleming added. “Nearly 80 percent of these homes are expected to be in North Carolina. In total, approximately 50,000 residential housing units may be damaged.
“Unfortunately, on top of the damage to tens of thousands of homes, historical data indicates that hurricanes and loan application defect risk go hand-in-hand,” Fleming continued. “Hurricanes, and especially the flooding associated with these natural disasters, create the potential and opportunity for significant misrepresentation of collateral condition.”
During August, the states with the largest year-over-year increases in defect frequency were Hawaii (+6.5 percent); Maine (+4.2 percent); and California (+1.3 percent). The index found the states with the greatest year-over-year decreases in defect frequency were South Carolina (-21.9 percent); Minnesota (-20.7 percent); Vermont (-19.2 percent); Arkansas (-17.9 percent); and North Dakota (-17.8 percent).