First American: Mortgage Fraud Risk at Three-Year Low

First American Financial Corp., Santa Ana, Calif., said frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications fell for the sixth consecutive month in September to its lowest level since December 2016.

The report said frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications in September decreased by 5.5 percent compared to August. From a year ago, the Defect Index decreased by 11.5 percent.

First American said the Defect Index for refinance transactions decreased by 4.5 percent from August and fell by 10 percent from a year ago. The Defect Index for purchase transactions decreased by 2.6 percent from August and by 6.3 percent from a year ago to its lowest level since January 2011.

The Defect Index is down 32.4 percent from the high point of risk in October 2013.

“It’s no coincidence that the broader U.S. economy has also hit some impressive milestones,” said First American Chief Economist Mark Fleming. “The current economic expansion extended the longest economic expansion in history by another month in September.”

Fleming noted while the rising share of refinance transactions and weakening sellers’ market conditions have helped reduce fraud risk in 2019, other factors are in play. “Rising household income driven by the strong labor market and lower mortgage rates have increased consumer house-buying power and helped boost consumer confidence,” he said. “As consumer house-buying power and consumer confidence swell amid the strong labor market, the pressure to misrepresent income and employment in mortgage applications declines.

“The pattern seems clear,” Fleming added. “As long as the economy trends up, fraud risk trends down.”

Other report findings:

–States with a year-over-year increase in defect frequency in September were South Dakota (11.1 percent), Nebraska (9.3 percent), New York (6.3 percent), Iowa (5.1 percent) and Wisconsin (1.3 percent).

–States with the greatest year-over-year decrease in defect frequency were Alaska (-21.4 percent), Florida (-19.1 percent), Texas (-18.8 percent), Virginia (-18.3 percent) and New Hampshire (-16.7 percent).

–Among largest metros, the only three markets with a year-over-year increase in defect frequency were Hartford, Conn. (3.1 percent), Buffalo, N.Y. (1.4 percent) and Kansas City, Mo. (1.3 percent).

–Metro markets with the greatest year-over-year decrease in defect frequency were San Diego (-24.4 percent), Orlando, Fla. (-23.3 percent), Houston (-23.3 percent), Virginia Beach, Va. (-22.0 percent) and San Antonio (-20.5 percent).