Market Overview

Florida and Texas Buck National Defect Risk Trend, According to First American Loan Application Defect Index

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—Unfortunately, historical data indicates that natural disasters
and defect risk go hand-in-hand and that trend seems to be playing out
in Florida and Texas, says Chief Economist Mark Fleming—

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 September 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.

September 2017 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the
    information submitted in mortgage loan applications is down 1.2
    percent month-over-month.
  • Compared to September 2016, the Defect Index increased by 20.3 percent.
  • The Defect Index is down 18.6 percent from the high point of risk in
    October 2013.
  • The Defect Index for refinance transactions remained the same compared
    to the previous month, and is 18.6 percent higher than a year ago.
  • The Defect Index for purchase transactions decreased 1.1 percent
    month-over-month, and is up 12.5 percent compared to a year ago.

Chief Economist Analysis: Post-Natural Disaster Defect Risk Trends
Appear to be Playing Out in Florida and Texas

"In July and August, we reported that the Loan Application Defect Index
didn't rise, which was good news given that loan application defect,
fraud and misrepresentation risk had risen throughout 2017," said Mark
Fleming, chief economist at First American. "In September, the overall
risk of defects, fraud and misrepresentation declined for the first time
this year, although there are regions with higher defect risk due to
recent natural disasters."

"Unfortunately, historical data indicates that natural disasters and
loan application defect risk go hand-in-hand," said Fleming. "Our
defect, misrepresentation and fraud risk index identified signs of this
risk trend in Texas and Florida this month and particularly in Houston,
where risk increased the most among all the major markets we track."

Additional Quotes from Chief Economist Mark Fleming

  • "Last month, based on data from previous natural disasters, we
    highlighted the potential for increased mortgage loan application
    fraud risk due to the hurricanes in Florida and Texas, particularly
    fraudulent or unintentional misrepresentation of collateral condition."
  • "In September, we see signs that this trend is bearing out in
    hurricane-impacted states. While nationally defect risk declined in
    September, the level of defect, fraud and misrepresentation risk has
    increased in Florida and Texas by 2.2 percent and 1.2 percent,
    respectively, compared to August."
  • "Prior to the hurricanes, defect risk in Florida and Texas was
    declining, but that trend has reversed in September."
  • "In Houston, which was severely impacted by flooding, defect, fraud
    and misrepresentation risk surged 7.2 percent, the largest
    month-over-month increase among the top 50 metropolitan markets.
    Flooding is associated with elevated risk for misrepresentation of
    collateral risk condition."

September 2017 State Highlights

  • The five states with the greatest year-over-year increase
    in defect frequency are: South Dakota (+54.2 percent), North Dakota
    (+45.7 percent), Wyoming (+40.3 percent), New Mexico (+40.0 percent),
    and Iowa (+39.3 percent).
  • There is one state with a year-over-year decrease
    in defect frequency: Connecticut (-2.8 percent).

September 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. (+52.4 percent); Virginia
    Beach, Va. (+29.7 percent); Tampa, Fla. (+27.4 percent); Jacksonville,
    Fla. (+24.7 percent); and San Antonio (+24.6 percent).
  • There is no CBSA among the largest 50 CBSAs with a year-over-year decrease
    in defect frequency.

Next Release

The next release of the First American Loan Application Defect Index
will be posted the week of November 27, 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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