Mortgage industry investment in tech is cutting fraud

by Steve Randall03 Sep 2018

An indicator of defects and fraud in mortgage applications has shown a further decline, meaning applications are getting more accurate.

The First American Loan Application Defect Index for July 2018 shows a 1.3% reduction in defects, fraudulence and misrepresentation in the information submitted in purchase mortgage loan applications compared to June.

Chief economist Mark Fleming says that the improvements seen over the past seven months is widespread across the US and is the result of the mortgage industry’s push into digital.

“The mortgage finance industry’s significant investment in financial technology to deliver a convenient, digital, highly automated and all-around better home-buying experience has also enhanced the mortgage manufacturing and underwriting process, producing declining levels of defect risk,” said Fleming.

There are two states with a year-over-year increase in defect frequency: Maine (+1.4%) and Hawaii (+1.1%).

The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-24.7%), Minnesota (-20.7%), Alabama (-20.0%), Vermont (-19.8%), and North Dakota (-18.6%).

Local markets over time

Looking at data from the 50 largest US housing markets, First American’s analysis over three-month intervals shows that almost all markets improved.

“Nationally, the Defect Index decline of 7.3% in July relative to three-month moving average was driven by declining risk in all but two markets – New Orleans and Louisville, Ky.,” said Fleming. “In some markets the decline was substantial. In 39 markets, defect risk declined more than 5%, while the three-month decline in risk exceeded 10% in 11 markets.”


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