After increasing in March for the first time since July 2015, the risk of loan defects in mortgage applications decreased in April, marking a return to the previous trend, according to First American Financial Corp.’s Loan Application Defect Index.
The index decreased 1.3% in April compared with March and decreased 5.1% compared with April 2015.
What’s more, the index was down 26.5% compared with the high point of risk in October 2013.
The risk of defects for applications for refinances decreased 3.0% month-over-month and decreased 7.2% year-over-year, while the risk of defects for purchases decreased 1.2% month-over-month and 5.7% year-over-year, according to the report.
“April’s decline in defect risk was proof that the modest increase observed in March was not the beginning of an upward trend in defect risk,” says Mark Fleming, chief economist at First American, in a release. “The index is again at the lowest point since its inception. Since the peak in late 2013, defect misrepresentation and fraud risk has trended significantly lower. While loan production expenses have increased during this time period, the decline in defect risk is reflective of the adoption and investment in better and more compliant loan manufacturing procedures.”
The April report includes a section focusing on the dramatic improvement in loan risk in the Detroit area, where the “old is fast disappearing and being replaced by a market with one of the fastest improving loan application, misrepresentation and fraud risk profiles in the country,” Fleming says.