Market Overview

Defect, Fraud and Misrepresentation Risk Heats Up to Levels Not Seen Since 2015, According to First American Loan Application Defect Index


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 May 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
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

May 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 May 2017 as compared with the previous month.
  • Compared to May 2016, the Defect Index increased by 13.7 percent.
  • The Defect Index is down 18.6 percent from the high point of risk in
    October 2013.
  • The Defect Index for refinance transactions increased 3.0 percent
    month-over-month, and is 9.7 percent higher than a year ago.
  • The Defect Index for purchase transactions increased 1.1 percent
    compared to last month, and is up 11.1 percent compared to a year ago.

Chief Economist Analysis: Defect Risk "Heat Wave" Fries Several
Southern Markets

"The Loan Application Defect Index is now reaching levels of risk not
seen since 2015," said Mark Fleming, chief economist at First American.
"While risk is growing in both purchase and refinance transactions, it
is important to recognize that loan application defect, fraud and
misrepresentation risk remains below the peak reached in 2013. Purchase
transaction risk is 13 percent below the peak and refinance transaction
risk is 32 percent below the peak. The purchase-pivot in the housing
market continues to add fuel to the fire of the overall level of
application, defect and fraud risk."

Additional Quotes from Chief Economist Mark Fleming

"Given the heat wave gripping many parts of the country, this month I am
highlighting the loan application defect risk ‘heat wave' frying several
markets in the South, according to the Loan Application Defect Index,"
said Fleming.

Rank Market Defect Index Value   Year-Over-Year Change
1 McAllen, Texas 106   10.4 percent
2 Charleston, S.C. 100   12.4 percent
3 Birmingham, Ala. 98   18.1 percent
4 Knoxville, Tenn. 98   22.5 percent
5 Augusta, Ga. 96   35.2 percent

"These hot spots for loan defect risk are getting hotter, as the risk in
these markets is increasing significantly. The defect risk in each
market has increased by a minimum of at least 10 percent in the past
year," said Fleming. "Southern markets are experiencing some of the
strongest growth in housing demand, as people seek the lower cost of
living compared to northeastern and western markets. Where there's
smoking demand, the flames of defect risk typically follow."

May 2017 State Highlights

  • The five states with the greatest year-over-year increase
    in defect frequency are: South Dakota (+56.4 percent), North
    Dakota (+50.0 percent), Wyoming (+40.9 percent), West Virginia (+35.6
    percent), and Iowa (+34.4 percent).
  • There is no state with a year-over-year decrease
    in defect frequency.

May 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. (+39.4 percent); Tampa, Fla.
    (+21.8 percent); Buffalo, N.Y. (+21.3 percent); New Orleans (+20.5
    percent); and Charlotte, N.C. (+19.2 percent).
  • Among the largest 50 CBSAs, the only two markets with a decrease
    in defect frequency are: Oklahoma City (-4.7 percent) and Milwaukee
    (-1.3 percent).

Next Release

The next release of the First American Loan Application Defect Index
will be posted the week of July 24, 2017.


The methodology statement for the First American Loan Application Defect
Index is available at


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

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