The overall risk of defects in mortgage applications in January was flat compared with December – however, the risk of fraud in applications for purchases increased 1.1%, according to First American’s Loan Application Defect Index.
“The overall defect, fraud and misrepresentation risk index remained unchanged, however, the index for purchase transactions increased in January,” says Mark Fleming, chief economist at First American, in a statement. “While misrepresentation and manufacturing defects can happen on either purchase or refinance transactions, there is a greater propensity for fraud with purchase transactions. The uptick in defect frequency in purchase transactions in January is an indication of heightened fraud risk.”
Fleming says the increased risk in January might be due in part to increased condominium production in Florida’s metropolitan areas. Because purchase transactions generally have higher risk, the defect risk in Florida has been on the rise, increasing 6.5% since September 2017.
“This may be partly driven by the popularity of high-rise condominiums in Florida’s large coastal metropolitan areas,” Fleming says. “Condominiums are the only property type for which defect, fraud and misrepresentation risk has increased in the last three months.”
“Florida is currently the third riskiest state according to the defect, fraud and misrepresentation risk index, and by far the largest state among the five most risky,” he adds. “The other states in the top five are Arkansas, Idaho, Wyoming and North Dakota.”
Overall, loan application defect risk has remained stable for the past five months, according to the report.
Compared with January 2017, the defect index increased by 13.7%.
However, it is down 18.6% compared with the high point of risk in October 2013.
The risk of defects in applications for refinances was unchanged compared with the previous month but was up 16.9% compared with January 2017.
The risk of defects in applications for purchases increased 1.1% compared with the previous month and increased 10.8% compared with January 2017.