Market Overview

Strong Sellers' Market Sends Defect, Fraud and Misrepresentation Risk Higher for Fourth Straight Month, According to First American Loan Application Defect Index

Share:





First
American Financial Corporation
(NYSE:FAF), 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 March 2017, 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.

March 2017 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the
    information submitted in mortgage loan applications increased 3.9
    percent in March 2017 as compared with the previous month.
  • Compared to March 2016, the Defect Index increased by 3.9 percent.
  • The Defect Index is down 22.5 percent from the high point of risk in
    October 2013.
  • The Defect Index for refinance transactions increased 3.3 percent
    month-over-month, and is 4.5 percent lower than a year ago.
  • The Defect Index for purchase transactions increased 2.4 percent
    compared to last month, and is up 3.6 percent compared to a year ago.

Chief Economist Analysis: Defect Risk Shifts South for Spring

"This month, the Loan Application Defect Index continued to trend upward
as the risk on refinance and purchase transactions both increased
compared to a month ago," said Mark Fleming, chief economist at First
American. "After four consecutive months of increased defect risk, it's
fair to call this a trend.

"We are experiencing one of the strongest sellers' markets in recent
memory and the ‘speed-buying' that is required for home buyers to make
an offer and win a bid for homes they like may be contributing to the
increase in defect, misrepresentation and fraud risk that we are
observing," said Fleming.

"Defect, fraud and misrepresentation risk is increasingly becoming a
regional phenomenon. The risk is concentrating in attractive local
markets where housing demand is the strongest, primarily in the South,"
said Fleming. "The South may not be so charming anymore if you manage
loan fraud and misrepresentation risk."

Additional Quotes from Chief Economist Mark Fleming

  • "The riskiest markets are increasingly in the South, with elevated
    risk stretching from Texas to Florida and up to West Virginia."
  • "The five markets with the highest defect risk in the country are all
    based in the South: McAllen, Texas; Charleston, S.C.; Tampa, Fla.;
    Knoxville, Tenn.; and Baton Rouge, La."
  • "The South is also one of the strongest regions of the country for
    housing demand. According to the most recent National Association of
    Realtors (NAR) existing-home
    sales release
    , the rate of existing-home sales increased 8.5
    percent in March compared to a year ago. Additionally, the median
    price in the South was up 8.6 percent compared to a year ago."
  • "Conversely, the Northeast has remained consistently low risk. The
    markets with the lowest level of defect, fraud and misrepresentation
    risk in the country are Scranton, Pa.; Toledo, Ohio; Rochester, N.Y.;
    Albany, N.Y.; and Harrisburg, Pa."

March 2017 State Highlights

  • The five states with the greatest year-over-year increase
    in defect frequency are: Wyoming (+42.4 percent), South Dakota
    (+37.5 percent), North Dakota (+35.8 percent), Mississippi (+28.6
    percent) and West Virginia (+26.8 percent).
  • The five states with the greatest year-over-year decrease
    in defect frequency are: Connecticut (-8.9 percent), Michigan (-6.1
    percent), Oklahoma (-3.3 percent), Delaware (-3.0 percent) and
    Washington (-2.5 percent).

March 2017 Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five
    markets with the greatest year-over-year increase
    in defect frequency are: Raleigh, N.C. (+28.8 percent); New Orleans
    (+12.7 percent); Tampa, Fla. (+11.8 percent); Jacksonville, Fla.
    (+10.8 percent); and Minneapolis (+10.7 percent).
  • Among the largest 50 CBSAs, the five markets with the greatest
    year-over-year decrease in defect
    frequency are: Milwaukee (-12.7 percent); Detroit (-12.6 percent);
    Oklahoma City (-9.2 percent); Louisville/Jefferson, Ky. (-8.8
    percent); and Hartford, Conn. (-8.2 percent).

Next Release

The next release of the First American Loan Application Defect Index
will be posted the week of May 22, 2017.

Methodology

The methodology statement for the First American Loan Application Defect
Index is available at http://www.firstam.com/economics/defect-index.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page
are those of First American's Chief Economist, do not necessarily
represent the views of First American or its management, should not be
construed as indicating First American's business prospects or expected
results, and are subject to change without notice. Although the First
American Economics team attempts to provide reliable, useful
information, it does not guarantee that the information is accurate,
current or suitable for any particular purpose. © 2017 by First
American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE:FAF) is a leading
provider of title insurance, settlement services and risk solutions for
real estate transactions that traces its heritage back to 1889. First
American also provides title plant management services; title and other
real property records and images; valuation products and services; home
warranty products; property and casualty insurance; and banking, trust
and investment advisory services. With total revenue of $5.6 billion in
2016, the company offers its products and services directly and through
its agents throughout the United States and abroad. In 2016 and again in
2017, First American was named to the Fortune 100 Best Companies
to Work For® list. More information about the company can be
found at www.firstam.com.

View Comments and Join the Discussion!