“In September, the overall risk of defects, fraud and misrepresentation declined for the first time this year, although there are regions with higher defect risk due to recent natural disasters, said Mark Fleming, chief economist at First American. “Unfortunately, historical data indicates that natural disasters and loan application defect risk go hand-in-hand. Our defect, misrepresentation and fraud risk index identified signs of this risk trend in Texas and Florida this month and particularly in Houston, where risk increased the most among all the major markets we track.
“In Houston, which was severely impacted by flooding, defect, fraud and misrepresentation risk surged 7.2 percent, the largest month-over-month increase among the top 50 metropolitan markets. Flooding is associated with elevated risk for misrepresentation of collateral risk condition.”
That’s the bad news.
The good news is that the frequency of defects and fraud among submitted mortgage loans fell 1.2% month-over-month in September, according to First American Financial Corporation.
The defect index is also down 18.6% from its peak in October 2013.
“In July and August, we reported that the Loan Application Defect Index didn’t rise, which was good news given that loan application defect, fraud and misrepresentation risk had risen throughout 2017,” Fleming said. “In September, the overall risk of defects, fraud and misrepresentation declined for the first time this year, although there are regions with higher defect risk due to recent natural disasters.”
Two major markets are showing an increased risk of mortgage application defects; but for the first time this year the country, overall, saw declines.