First American says just 5 major metros show rise in overall defects
The increased use of technology in the mortgage industry is helping to reduce incidents of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications.
First American Financial says that its Loan Application Defect Index was down 3.8% in June compared to May and down 8.3% compared with June 2017.
The index for refinances was down 2.8% month-over-month and 1.4% year-over-year; but the decline was more noticeable in purchase loan applications.
“As the mortgage market has continued its transition away from refinances to a predominantly purchase-oriented loan market, the Defect Index for purchase transactions has continued to decline, dropping 3.6% in the last month and 12.1% in the last year,” said Mark Fleming, chief economist at First American. “This officially marks a six-month long decline in defect, fraud and misrepresentation and risk on purchase transactions, which have traditionally been considered higher risk.”
The decline in the index is seen in almost every market nationwide with just five of the major metros showing an increase year-over-year. Many markets saw declines of at least 10%.
Millennials are keen to use tech
Fleming says that millennial homebuyers are keen to experience a streamlined, convenient, and digital mortgage application process and this is helping to ensure correct information.
“The technology investment that has occurred in the mortgage industry in recent years to better serve millennial first-time home buyers also helped make the manufacture and underwriting of mortgage loans less risky with fewer defects and misrepresentation on loan applications. Sometimes, unintended consequences aren’t so bad,” he said.
June 2018 State Highlights
- The three states with a year-over-year increase in defect frequency: California (+1.3 percent), Virginia (+1.3 percent) and New Mexico (+1.2 percent).
- The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-25.0 percent), Vermont (-21.8 percent), Minnesota (-19.5 percent), Alabama (-19.1 percent) and North Carolina (-17.4 percent).
June 2018 Local Market Highlights
- Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are: Virginia Beach, Va. (+15.6 percent), Los Angeles (+12.0 percent), Orlando, Fla. (+8.4 percent), San Diego (+7.5 percent), and Memphis, Tenn. (+3.9 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the largest year-over-year decrease in defect frequency are: Birmingham, Ala. (-26.3 percent), Raleigh, N.C. (-23.7 percent), Minneapolis (-20.9 percent), Austin, Texas (-20.9 percent), and Pittsburgh (-20.5 percent).