SANTA ANA, CA—First American Financial Corporation, a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the First American Loan Application Defect Index for October 2015, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It's available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.
The Index fell 2.5% in October as compared with September and decreased by 10.2% as compared with October 2014. The Defect Index, which reflects estimated mortgage loan defect rates over time, by geography and by loan type, is down 22.3% from the high point of risk in October 2013.
This is the third month-over-month decline in a row of defect and misrepresentation risk, returning the Defect Index to the level of April 2015 and reversing the upward trend in the first half of the year. The Defect Index has fallen more than six percent over the last three months. The index is up 1.3% from the low point for defect risk set in March 2015, yet remains well below the level of defect risk observed throughout most of the historical series.
"Fraudulent and mis-representative loan applications are continuing to decline, as our risk index is trending toward the lowest point we have recorded in the last five years. The reduction in risk is occurring across property type, occupancy, loan purpose, and whether a conforming conventional or FHA, VA, USDA loan," said Mark Fleming, chief economist at First American. "While risk is declining overall, there are still categories of loans that are riskier. In particular, self-reported investor, ARM, purchase, and multi-unit transactions have heightened defect, fraud, and misrepresentation risk."
The Defect Index for refinance transactions declined 2.8% month-over-month, and is now 10.4% lower than a year ago. The Defect Index for purchase transactions improved 2.3% month-over-month, and is down 10.5% compared to a year ago. Since defect risk for both purchase and refinance transactions peaked in late 2013, defect risk on refinance transactions has declined much more than defect risk for purchase transactions, declining 31% as compared to 18.3% for purchase transactions.
· The five states with the highest month-over-month increase or smallest decrease in defect frequency are: North Dakota (+3.3%, Alaska (+0.0%), Iowa (+0.0%), and Missouri (+0.0%) and Illinois (-1.3%).
· The five states with the highest month-over-month decrease in defect frequency are: Michigan (-6.1%), Vermont (-5.2%), California (-4.9%), Louisiana (-4.9%) and Connecticut (-4.8%).
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