The First American Loan Application Defect Index, which measures defects, fraud and misrepresentation in the information submitted in mortgage applications, has fallen drastically.
“Nationally it’s down 2.6% month-over-month in December and 8.4% year-over-year,” Economist Mark Fleming told Mortgage Professional America. “Most of the markets seem to be improving and the main reason is the high risk markets, such as Miami, are improving.
“We do expect the trend to continue.”
Fleming believes stricter underwriting is making a difference.
“Part of it is the industry’s own doing – it is underwriting more stringently than in the past,” Fleming said. “Putting the proverbial club on the car has decreased risk.”
One are that has improved dramatically is Iowa.
“Iowa defect and misrepresentation risk has declined by almost nine percent in the past year and has one of the lowest levels of risk among all 50 states,” First America said in a release. “Misrepresentation and fraud risk has declined 23 percent from Iowa’s high point in September 2014.”
According to the company, the five states with the highest month-over-month decrease in defective loans are: Alaska (-10.8 percent), Mississippi (-5.6 percent), New Mexico (-5.3 percent), Montana (-4.3 percent) and Indiana (-4.1 percent).
“The return to a more normalized market has helped manage risk; there is less investor activity and cash sales,” Fleming said.
The housing market is improving and fraud is declining – a trend one economist says will continue.