Market continues to improve, with defect and fraud risk continuing decline

by Justin da Rosa29 Feb 2016
With more and more evidence pointing to an improving industry is now the best time to be an originator?

Based on rebounding prices, upticks in originator business, and the decline of fraud risk that answer is likely a resounding yes.

According to First American Financial’s Loan Application Defect Index – which estimates mortgage loan defect rates – January was the sixth consecutive month without an increase in defect and misrepresentation risk.

The index has now fallen 25.5% from the high point of risk in October 2013.

“We are excited about the further clarification to the market by the Federal Housing Finance Agency that the GSEs will use an independent dispute resolution (IDR) process to resolve repurchase disputes as a result of loan application defects and fraud,” Mark Fleming, chief economist at First American Financial, said. “Based on the improving defect and fraud risk profile of recent loan applications, we expect the need for the IDR process to decline in the coming years as well.”

And default risk will be a hot topic in the coming months, according to First American.

“As Super Tuesday fast approaches on March 1, and with its likely important implications for the summer conventions of both the Democrats and Republicans, we consider the state of defect, fraud and misrepresentation risk in the major Super Tuesday states – Alabama, Alaska, Arkansas, Colorado, Georgia, Massachusetts, Minnesota, North Dakota, Oklahoma, Tennessee, Texas, Vermont, Virginia and Wyoming,” Fleming said. “In other words, how risky are mortgage loan applications in the Super Tuesday states?


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