The risk of defects, fraudulence and misrepresentation in the information submitted in mortgage applications decreased by 5.5% in May compared with April, First American’s Loan Application Defect Index shows.
That’s down 7.5% compared with May 2018.
And it is down 15.7% from the high point of risk in October 2013.
The risk of defects in refinance transactions fell by 7.2% compared with the previous month but was up 8.5% compared with a year earlier.
The risk of defects in purchase transactions decreased by 6.3% compared with the previous month but was up 8.4% compared with a year earlier.
Helping to drive down the risk of fraud was lower mortgage rates.
“Last month, we predicted that if mortgage rates continued to fall, it may help ease the pressure on fraud risk,” says Mark Fleming, chief economist at First American, in the report.
“Indeed, the 30-year, fixed-rate mortgage fell to its lowest level since January 2018, and fraud risk has fallen alongside it.”
As Fleming points out, the national index has fallen 9.5% in the past three months.
Interestingly, the decrease in fraud risk was strongest in markets where affordability improved the most.
“According to our April 2019 Real House Price Index (RHPI), affordability improved in most of the markets where fraud risk declined compared with three months ago, allowing potential home buyers to feel more secure in their purchase and reducing fraud risk,” Fleming says.
Not only are lower mortgage rates helping to boost home buying power, so, too, are rising wages and low unemployment.
“Following the strong sellers’ market conditions throughout 2018, market dynamics have shifted slightly toward buyers in 2019,” Fleming says. “Mortgage rates began to decline in January 2019 and are now lower than one year ago.
“Meanwhile, household income, the other component of house-buying power, has continued to increase, rising 2.8 percent in May compared with one year ago,” he says. “Falling mortgage rates and rising household income have boosted consumer house-buying power.”
The main obstacle holding buyers back right now is tight inventory.
However, as Fleming notes, “there has been some progress.”
“In May, inventories increased 2.7 percent nationally compared with one year ago,” he says. “The trend is similar at the market level as active inventory increased in 40 of the top 50 metropolitan areas.”