Mortgage lenders’ investment in technology in order to meet the demand of millennials for a smooth, all-digital, online mortgage experience is paying off in reduced application defect risk.
According to First American Financial Corp.’s Loan Application Defect Index, the risk of defects in mortgage applications decreased 3.8% in June compared with May and was down by 8.3% compared with June 2017.
The decrease is notable because defect risk typically increases when the mortgage market shifts to a purchase market – which it has been for the past year, due to rising rates.
In general, applications for purchase loans carry greater defect risk, compared with applications for refinances, because borrower information is usually being submitted for the first time.
However, June marked “a six-month long decline in defect, fraud and misrepresentation and risk on purchase transactions,” says Mark Fleming, chief economist for First American, in a statement.
“Not only is the national trend positive, but loan application defect, fraud and misrepresentation risk is declining in practically every market in the nation,” Fleming says. “Only five major metropolitan markets experienced an increase in overall defect, fraud and misrepresentation risk compared with a year ago. Many markets experienced significant declines of 10 percent or more.”
Fleming says the technology that is now being deployed by mortgage lenders – in particular automated underwriting – is playing a significant role in driving down risk for purchase loans.
“The technology investment that has occurred in the mortgage industry in recent years to better serve millennial first-time home buyers also helped make the manufacture and underwriting of mortgage loans less risky with fewer defects and misrepresentation on loan applications,” he says.
As of June, the defect index was down 24.5% from the high point of risk in October 2013.
The risk of defects in applications for purchases decreased 3.6% compared with May and was down 12.1% compared with June 2017.
The risk of defects in applications for refinances was down 2.8% compared with May and was down 1.4% compared with June 2017.
