Mortgage Fraud Risk Reaches Multi-Year Low Point, According to First American’s Loan Application Defect Index
October 31 2019 - 7:00AM
Business Wire
—The strong economy combined with declining
mortgage rates in 2019 resulted in falling income- and
employment-specific defect risk, 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 2019,
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 loan type. It is 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, and can provide state- and
market-specific comparisons of mortgage loan defect levels.
September 2019 Loan Application Defect Index
- The frequency of defects, fraudulence and misrepresentation in
the information submitted in mortgage loan applications decreased
by 5.5 percent compared with the previous month.
- Compared with September 2018, the Defect Index decreased by
11.5 percent.
- The Defect Index is down 32.4 percent from the high point of
risk in October 2013.
- The Defect Index for refinance transactions decreased by 4.5
percent compared with the previous month and is down 10.0 percent
compared with a year ago.
- The Defect Index for purchase transactions decreased by 2.6
percent compared with the previous month and is down 6.3 percent
compared with a year ago.
Chief Economist Analysis: Defect Index Reaches Lowest Point
Since December 2016
“Declining for the sixth consecutive month, the Loan Application
Defect Index for purchase transactions fell 2.6 percent in
September compared with August. The Defect Index for refinance
transactions also fell, declining 4.5 percent compared with the
previous month,” said Mark Fleming, chief economist at First
American. “The overall Defect Index, which includes both purchase
and refinance transactions, fell 5.5 percent compared with last
month, and is 11.5 percent lower than one year ago.
“The overall Defect Index has not been this low since December
2016. In fact, the Defect Index for purchase transactions reached
an impressive milestone – the lowest point since we began tracking
defect risk for purchase transactions in January 2011,” said
Fleming. “It’s no coincidence that the broader U.S. economy has
also hit some impressive milestones. The current economic expansion
extended the longest economic expansion in history by another month
in September. And, unemployment fell to 3.5 percent in September,
which marked the 19th consecutive month at, or below, 4 percent
unemployment. The unemployment rate is the lowest it has been since
1969 – over 50 years ago.
“The strong economy has driven the tight labor market and the
competition among employers for workers has fueled wage growth.
Wage growth pushes household income upward, which was 2.4 percent
higher in September compared with one year ago,” said Fleming.
“But, what is the connection between a strong economy and fraud
risk?”
Economy Up, Fraud Down?
“While the rising share of refinance transactions and weakening
sellers’ market conditions have helped reduce fraud risk in 2019,
there are some other factors at play as well. Rising household
income driven by the strong labor market and lower mortgage rates
have increased consumer house-buying power and helped boost
consumer confidence,” said Fleming. “As consumer house-buying power
and consumer confidence swell amid the strong labor market, the
pressure to misrepresent income and employment in mortgage
applications declines.
“The data in our employment- and income-specific defect indices
reflect this dynamic. Employment fraud risk has steadily declined
since March 2019 and employment-specific fraud risk was 9.2 percent
lower in September than August, and 7.8 percent less than a year
ago,” said Fleming. “Additionally, income-specific fraud risk in
September was 12.5 percent lower compared with one year ago.
“So far, both the economy and fraud risk have reached positive
milestones in 2019,” said Fleming. “The pattern seems clear – as
long as the economy trends up, fraud risk trends down.”
September 2019 State Highlights
- The five states with a year-over-year increase in defect frequency are: South Dakota
(+11.1 percent), Nebraska (+9.3 percent), New York (+6.3 percent),
Iowa (+5.1 percent), and Wisconsin (+1.3 percent).
- The five states with the greatest year-over-year decrease in defect frequency are: Alaska (-21.4
percent), Florida (-19.1 percent), Texas (-18.8 percent), Virginia
(-18.3 percent), and New Hampshire (-16.7 percent).
September 2019 Local Market Highlights
- Among the largest 50 Core Based Statistical Areas (CBSAs), the
only three markets with a year-over-year increase in defect frequency are: Hartford, Conn.
(+3.1 percent), Buffalo, N.Y. (+1.4 percent), and Kansas City, Mo.
(+1.3 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the
five markets with the greatest year-over-year decrease in defect frequency are: San Diego (-24.4
percent), Orlando, Fla. (-23.3 percent), Houston (-23.3 percent),
Virginia Beach, Va. (-22.0 percent), and San Antonio (-20.5
percent).
Next Release
The next release of the First American Loan Application Defect
Index will take place the week of November 25, 2019.
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. © 2019 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; banking, trust and wealth management
services; and other related products and services. With total
revenue of $5.7 billion in 2018, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2019, First American was named to the Fortune
100 Best Companies to Work For® list for the fourth consecutive
year. More information about the company can be found at
www.firstam.com.
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Marcus Ginnaty Corporate Communications First American Financial
Corporation (714) 250-3298
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