Applications For FHA Mortgages Have Less Risk Of Fraud? Huh?


After decreasing 2.8% the previous month, the risk of fraud in mortgage applications was basically flat in August compared with July, according to First American’s Loan Application Defect Index.

Interestingly, the firm’s research shows that the risk of fraud in applications for mortgages backed by the Federal Housing Administration (FHA) was actually lower than the risk for conventional loans.

This is unusual because, as explained by Mark Fleming, chief economist for First American, “FHA loans are generally considered to have higher credit risk than conventional loans.”

In fact, the level of risk in applications for all government-backed loans – including the U.S. Department of Agriculture (USDA) and Veterans Affairs (VA) – decreased 17.7% year over year, while the level of risk in applications for conventional loans decreased 14.6%.

“Transactions involving FHA/VA/USDA loans are currently 14.5 percent less risky than transactions involving conventional loans,” Fleming said. “In fact, loan application and defect risk on transactions involving FHA/VA/USDA loans has declined more in recent years than the defect risk for conventional mortgages.”

Although the risk of fraud in all applications submitted in August was flat compared with July, it had decreased 31.4% from the high point of risk in October 2013.

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