Market Overview

Fifth Consecutive Month of Increased Defect, Fraud and Misrepresentation Risk Signals Need for Vigilance, According to First American Loan Application Defect Index

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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 April 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.

April 2017 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the
    information submitted in mortgage loan applications increased 2.5
    percent in April 2017 as compared with the previous month.
  • Compared to April 2016, 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.
  • The Defect Index for refinance transactions increased 4.8 percent
    month-over-month, and is 3.1 percent higher than a year ago.
  • The Defect Index for purchase transactions increased 2.3 percent
    compared to last month, and is up 7.2 percent compared to a year ago.

Chief Economist Analysis: Five Straight Months of Increased Defect
Risk

"The Loan Application Defect Index continued its strong
upward increase for the fifth consecutive month," said Mark Fleming,
chief economist at First American. "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. 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."

Additional Quotes from Chief Economist Mark Fleming
"Usually,
I emphasize defect risk hot spots in the analysis of our monthly Loan
Application Defect Index, focusing on hot spots for rising defect risk.
Instead, this month I am highlighting the defect risk ‘cool' spots, the
five markets with the lowest defect risk among the 100 markets we
follow," said Fleming.

                           

Rank

     

Market

     

Defect Index Value

      Year-Over-Year Change
1      

Scranton, Pa.

      55       12.2 percent
2       Toledo, Ohio       63       14.5 percent
3      

Omaha, Neb.

      65       1.6 percent
4       Philadelphia       65       3.2 percent
5       Richmond, Va.       66       1.5 percent

"Scranton, Pennsylvania takes the prize as the ‘coolest' spot, or the
market with the lowest loan application and defect risk in the country,"
said Fleming. "But, lenders beware, with a defect risk growth rate of
12.2 percent year-over-year, Scranton may not be cool to defect risk for
long. So, what matters more? The risk today or, proverbially, tomorrow?"

April 2017 State Highlights

  • The five states with the greatest year-over-year increase
    in defect frequency are: 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 are: Connecticut (-2.6 percent) and Oklahoma (-2.2
    percent).

April 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. (+32.8 percent); New Orleans
    (+18.2 percent); Tampa, Fla. (+17.3 percent); Jacksonville, Fla.
    (+16.5 percent); and Birmingham, Ala. (+14.6 percent).
  • Among the largest 50 CBSAs, the five markets with the greatest
    year-over-year decrease in defect
    frequency are: 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).

Next Release
The next release of the First American Loan
Application Defect Index will be posted the week of June 26, 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.

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