The risk of fraud in mortgage applications decreased 1.3% in November compared with October and decreased 8.2% compared with November 2014, according to First American Financial Solutions’ (FAMS) Loan Application Defect Index.
It was the fourth month in a row that the index decreased on a month-over-month basis.
The index, which estimates the level of potential fraud in mortgage applications submitted by consumers, has fallen almost 5% over the last three months and is now well below the level seen in 2011-2013. What’s more, the risk of defects is down 23.5% from the high point of risk in October 2013, FAMS says in its report.
The risk of defects in applications for refinances decreased 2.9% compared with October and decreased 10.7% compared with November 2014. The risk of defects in applications for purchases was flat month over month – but down 8.6% compared with November 2014.
It should be noted that not all loan application defects are necessarily indicative of fraud – some are simply errors on the part of borrowers. Automated underwriting has greatly reduced the degree of such errors and will likely continue to do so.
FAMS points out that because the market continues to shift from a refinance market to a purchase market, the rate of defect risk on refinance transactions continues to decrease at a faster rate.
Moreover, from the high point of risk in late 2013 to November, the risk of defects on applications for refinances has decreased 33%, whereas for applications for purchases it has decreased 18.3%.
“While fraudulent and misrepresentative loan applications are continuing to decline, a few large markets remain at risk,” says Mark Fleming, chief economist at First American, in a statement. “In particular, the concentration of risk in Florida is a concern. All the major metropolitan areas in Florida are above the national average, and Miami ranks second among the top 100 markets nationally. Luckily, while the risk of loan defects in Florida is significantly higher than the national average, the risk is following the same downward trend as the national average. In fact, fraud and misrepresentation risk is down seven percent over the last three months.”
States that saw the highest month-over-month increases in defect frequency in November included District of Columbia (3.9%), South Carolina (3.8%), West Virginia (3.6%), New Hampshire (3.3%) and Iowa (1.6%).
States that saw the biggest month-over-month decreases in defect frequency included Montana (-5.5%), Michigan (-4.3%), Rhode Island (-4.2%), Hawaii (-3.4%) and Texas (-3.3%).