Loan defects in August declined 1.6 percent month-to-month nearly 18 percent from one year earlier, according to First American’s Loan Application Defect Index.
First American said the decline was driven by both purchase and refinance loan fraud risk.
“While refinance loan fraud risk continued its three-month descent, this marked the first time in five months that purchase loan fraud risk declined,” First American Deputy Chief Economist Odeta Kushi said in a release. “Yet, purchase fraud risk remains 5.2 percent higher than one year ago.”
“The defect index for refinance transactions decreased by nearly 26 percent compared with one year ago and reached a new low in its almost 10-year history,” Kushi added. “Defect, fraud and misrepresentation risk is significantly lower on refinance transactions, but it’s likely that the mortgage finance industry’s significant investment and adoption of financial technology has contributed to the decline in refinance fraud risk.
According to the index, loan defects on a yearly basis decreased 25.9 percent in Louisiana; 15.9 percent in Arkansas; 33.8 percent in West Virginia; and 30.6 percent in Alaska.
“As consumers rush to lock in historically low rates, financial technology and automation not only saves time, but reduces fraud,” Kushi said. “Technology allows lenders to compare a borrower’s information against employment databases and can be used to flag missing or inconsistent data. These advancements, which help to deliver a convenient, digital, highly automated experience, have also enhanced the mortgage manufacturing and underwriting process, producing declining levels of defect risk.”