Loan Application Defects Up 5th Straight Month

June 6, 2017

First American Financial Corp., Irvine, Calif., said its monthly Loan Application Defect Index rose in April, the fifth consecutive monthly increase.

The report said the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 2.5 percent in April from March. From a year ago, the Defect Index increased by 8.0 percent. The Defect Index is down 20.6 percent from the high point of risk in October 2013.

First American said the Defect Index for refinance transactions increased by 4.8 percent month-over-month and by 3.1 percent from a year ago. The Defect Index for purchase transactions increased by 2.3 percent compared to March and by7.2 percent from a year ago.

“The pace of defect risk growth is as strong as we have seen since the index began in 2011, adding to the concern over the five-month trend,” said First American Chief Economist Mark Fleming. “While we have recently noted that part of the rise in overall risk is due to the market’s shift toward riskier purchase transactions, the fact that risk in refinance transactions is also on the rise underscores the need for caution.”

The report said states with the greatest year-over-year increase in defect frequency were South Dakota (+49.1 percent), Wyoming (+43.5 percent), North Dakota (+39.1 percent), West Virginia (+35.1 percent), and Iowa (+29.5 percent). The only two states with a year-over-year decrease in defect frequency were Connecticut (-2.6 percent) and Oklahoma (-2.2 percent).

Among the 50 largest U.S. metros, markets with the greatest year-over-year increase in defect frequency were Raleigh, N.C. (+32.8 percent); New Orleans (+18.2 percent); Tampa, Fla. (+17.3 percent); Jacksonville, Fla. (+16.5 percent); and Birmingham, Ala. (+14.6 percent). Markets with the greatest year-over-year decrease in defect frequency were Milwaukee (-10.1 percent); Oklahoma City (-9.1 percent); Detroit (-4.9 percent); Austin, Texas (-4.4 percent); and Louisville/Jefferson, Ky. (-2.6 percent).