The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage applications decreased by 5.0% in July compared with June but was flat compared with July 2018, according to First American’s Loan Application Defect Index.
The month-over-month decrease is the result of falling mortgage rates and a corresponding increase in applications for refinances, which generally carry less risk of fraud than purchases, because most borrowers have already been verified.
The rate of defects for refinance transactions decreased by 4.2% compared with the previous month but was flat compared with July 2018.
The rate of defects for purchase transactions fell by 3.6% compared with the previous month but was up 1.3% compared with a year ago.
Mark Fleming, chief economist at First American, says “the only month the overall defect index has been lower was in October 2016.”
“As the mortgage market composition continues to shift toward refinance transactions in 2019, the risk of defect, fraud and misrepresentation will continue to decline,” Fleming adds.
The rate of defects in July was is down 25.5% from the high point of risk in October 2013.