First American: Mortgage Fraud Risk Continued To Decrease In February

The risk of mortgage defects resulting from errors or fraud in the application process continued to decrease in February, according to First American Mortgage Solutions’ Loan Application Defect Index.

According to the report, the risk of defects decreased 1.3% in February compared with January and decreased 5.1% compared with February 2015.

What’s more, risk is down 26.5% from the high point of risk in October 2013.

February was the seventh consecutive month that mortgage defect and misrepresentation risk decreased, First American says.

Apart from increases in 2013 and early 2015, the index has been consistently trending lower since inception. In general, the risk of defects for refinances has decreased more rapidly in comparison with the risk of defects for purchases.

In the report, Mark Fleming, chief economist for First American, says part of the reason that the loan defect rate continues to decrease is because lenders continue to invest in technology that automates processes and improves compliance.

“According to the Mortgage Bankers Association, loan production expenses have been increasing, which reflects the industry’s investment in technology and improved standards, as well as greater demand for compliant loan production processes,” Fleming says in a release. “One benefit of these investments is declining loan application defect and misrepresentation risk.”

States that saw the highest increases in defect risk during the past year include Utah (+9.7%), Kentucky (8.8%), South Carolina (8.6%), the District of Columbia (8.0%) and Texas (5.0%).

States that saw the greatest year-over-year decreases in defect risk were Alabama (17.2%), Michigan (16.2%), West Virginia (15.6%), Minnesota (14.8%) and Wyoming (14.7%).

The report also looks at what is driving defect and fraud risk in two states, Florida and Texas.

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