Fraud and Misrepresentation Risk Concentrating in Florida, According to First American Loan Application Defect Index
—Increased risk in
The First American Loan Application Defect Index fell 1.3 percent in November as compared with October and decreased by 8.2 percent as compared with
The Defect Index for refinance transactions declined 2.9 percent month-over-month, and is now 10.7 percent lower than a year ago. The Defect Index for purchase transactions remained flat month-over-month, and is down 8.6 percent compared to a year ago. Since defect risk for both purchase and refinance transactions peaked in late 2013, defect risk on refinance transactions continues to decline much more than defect risk for purchase transactions, declining 33 percent as compared to 18.3 percent for purchase transactions.
“While fraudulent and misrepresentative loan applications are continuing to decline, a few large markets remain at risk. In particular, the concentration of risk in
- The five states with the highest month-over-month increase in defect frequency are:
District of Columbia (+3.9 percent),South Carolina (+3.8 percent),West Virginia (+3.6 percent),New Hampshire (+3.3 percent) andIowa (+1.6 percent). - The five states with the highest month-over-month decrease in defect frequency are:
Montana (-5.5 percent),Michigan (-4.3 percent),Rhode Island (-4.2 percent),Hawaii (-3.4 percent) andTexas (-3.3 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the highest month-over-month increase in defect frequency are:
Columbus, Ohio (+1.4 percent);Kansas City, Mo. (+1.4 percent);Washington, D.C. (+1.4 percent);Memphis, Tenn. (+1.3 percent); andNashville, Tenn. (+1.3 percent). - Among the largest 50 CBSAs, the five markets with the highest month-over-month decrease in defect frequency are:
Detroit (-5.9 percent);Hartford, Conn. (-5.3 percent);San Antonio (-5.1 percent);Austin, Texas (-4.1 percent); andHouston (-3.1 percent).
Occupancy and Property Type Increase Defect Risk
The intended occupancy type of a home purchase or mortgage refinance can be very predictive of the risk of mortgage loan misrepresentation and even fraud. Our indices by occupancy status show a very consistent rank ordering of increasing risk from owner-occupied, to second home, to investor properties. In November, investor-occupied applications were 29 percent riskier than owner-occupied applications. The increased investor-based risk can also be seen in multi-unit applications, a popular property type among investors. In fact, multi-unit properties are 30 percent more likely to have defect and misrepresentation risk than a single-family home.
“With misrepresentation and fraud risk falling overall, we can focus on the types of loan transactions that are the riskiest. Multi-unit investment properties jump out as significantly more prone to loan application defect risk than other occupancy or property types,” said Fleming. “Miami’s high overall risk-ranking may well be due to that market’s increased share of investment activity.”
Next Release
The next release of the First American Loan Application Defect Index will be posted on
Methodology
The methodology statement for the First American Loan Application Defect Index is available at http://www.firstam.com/economics/defect-index.
Disclaimer
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2015 by First American. Information from this page may be used with proper attribution.
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