Loan application defect risk stabilizes in November

by Francis Monfort03 Jan 2018
The frequency of defects in mortgage loan applications continued to stabilize in November, according to the Loan Application Defect Index released by First American Financial.

The index remained steady compared with October but rose 22.1% compared to November 2016. Compared to the high point of risk in October 2013, the index is down 18.6%.

November marked a 1.1% month-over-month increase in the Defect Index for purchase transactions. The purchase index rose 13.8% year over year. While defects in refinance transactions were steady month over month, they were 23.2% higher than in November 2016.

First American Chief Economist Mark Fleming said there was reason to be optimistic about defect, fraud, and misrepresentation risk in 2018. He said risk had stabilized after a year of significant change, with overall risk remaining steady in three of the last four months.

"Keep in mind that the Loan Application Defect Index was at its lowest point ever in November 2016, before defect risk surged by 24% in the following seven months, one of the fastest changes the defect index has recorded since its inception in 2011,” Fleming said. “The increase was primarily driven by an increase in the share of purchase mortgage transactions, which tend to carry more risk, and more transactions in riskier markets. This fall, we have seen some moderation and stabilization of these market dynamics and, as a result, no further increase."

South Dakota recorded the greatest year-over-year increase in defect frequency with a 50.8% rise. North Dakota, New Mexico, Idaho, and Iowa rounded out the top five states. Connecticut was the only state with a year-over-year decrease at 1.5%.

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