Rate of Mortgage Application Defects Fell in June

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The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage applications decreased 7% in June compared with May and was down 3.9% compared with June 2018, according to First American Financial Corp.’s Loan Application Defect Index.

The index estimates loan defect rates over time, by geography and loan type. The interactive tool can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types. It also provides state- and market-specific comparisons of mortgage loan defect levels.

The rate of defects for applications for refinances decreased by 6.5% compared with the previous month but was up 4.3% compared with a year earlier.

The rate of defects for applications for purchases decreased by 7.8% compared with the previous month but was up 3.8% compared with a year earlier.

States with the largest year-over-year increases in their overall defect rates in June included Arkansas (-10.3%), Florida (-6.7%), Vermont (-5.1%), Utah (-4.8%) and Arizona (-4.0%).

Mark Fleming, chief economist at First American, notes that “Florida cities claimed four of the top six spots among the top cities where fraud risk declined the most on an annual basis [in June].”

Those cities included Jacksonville (-15.1%), Tampa (-11.5%), Orlando (-11.1%), and Miami (-7.3%).

“This is a deviation from the norm, as Florida has historically exhibited a relatively greater concentration of fraud risk due to some characteristics of the Florida housing market,” Fleming says in a statement. “Florida tends to have a higher percentage of investor-owned properties, which have a higher propensity for fraud risk. Indeed, according to the Defect Index in June, applications for investment properties were 24 percent riskier than for owner-occupied properties, and applications for multi-unit properties, a popular purchase for investors, were 11 percent more likely to contain defects than applications for single-family homes.”

Fleming adds that falling condo sales in Florida may also be contributing to the decrease in application fraud.

“According to data from DataTree by First American, the number of condo existing-home sales has fallen in Miami, Orlando and Tampa compared with last year,” he says. “Statewide, condo existing-home sales in Florida have fallen nearly 14 percent compared with one year ago, which is counter to the national trend.

“Loan applications for condos and multi-family properties have historically been riskier than single-family properties, so fewer condo and multi-family transactions may help explain the decline in fraud risk in Florida,” he adds.

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