—It should come as no surprise that in the wake of major natural disasters, the risk of mortgage loan application fraud increases, says Chief Economist
- The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased by 1.3 percent compared with the previous month.
- Compared to
August 2017, the Defect Index decreased by 8.3 percent.
- The Defect Index is down 24.5 percent from the high point of risk in
- The Defect Index for refinance transactions is the same as the previous month and is 1.4 percent lower than a year ago.
- The Defect Index for purchase transactions remained unchanged compared with the previous month and is down 13.2 percent compared with a year ago.
Chief Economist Analysis: Do Hurricanes Influence Mortgage Fraud Risk?
“Following seven straight months of declining defect risk, the Loan Application Defect Index for purchase transactions remained the same in August compared with the month before. Year over year, the Defect Index for purchase transactions decreased 13.2 percent as compared to August 2017,” said
Rising Mortgage Fraud Risk Linked to Hurricanes
“While the overall risk of loan application defects, fraud, and misrepresentation have been on the decline, there are regions with the potential for higher defect risk due to the impact from Hurricane Florence,” said Fleming. “The expected damage to housing is staggering. Based on the
“Unfortunately, on top of the damage to tens of thousands of homes, historical data indicates that hurricanes and loan application defect risk go hand-in-hand,” said Fleming. “Hurricanes, and especially the flooding associated with these natural disasters, create the potential and opportunity for significant misrepresentation of collateral condition.
“In the aftermath of Hurricane Sandy in late
“Similarly, before Hurricanes Harvey and Irma hit, mortgage risk in
Fraud Risk in Carolinas Likely to Increase in the Months Ahead
“While the devastating impacts from Hurricane Florence in the Carolinas continue to be assessed, it should come as no surprise that in the wake of major natural disasters, the risk of mortgage loan application fraud increases,” said Fleming. “According to the Defect Index, defect risk levels in the Carolinas were already trending up in recent months, and one should be on the lookout for further increases in risk in the markets impacted.”
- There are three states with a year-over-year increase in defect frequency:
Hawaii(+6.5 percent), Maine(+4.2 percent), and California(+1.3 percent)
- The five states with the greatest year-over-year decrease in defect frequency are:
South Carolina(-21.9 percent), Minnesota(-20.7 percent), Vermont(-19.2 percent), Arkansas(-17.9 percent), and North Dakota(-17.8 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are:
Virginia Beach, Va.(+14.1 percent), Los Angeles(+11.0 percent), Orlando, Fla.(+11.0 percent), San Diego(+6.3 percent), and Houston(+6.0 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the largest year-over-year decrease in defect frequency are:
Raleigh, N.C.(-23.7 percent), Minneapolis(-23.5 percent), Birmingham, Ala.(-21.4 percent), St. Louis(-18.9 percent), and Boston(-17.6 percent).
The next release of the First American Loan Application Defect Index will take place the week of
The methodology statement for the First American Loan Application Defect Index is available at http://www.firstam.com/economics/defect-index.
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. © 2018 by First American. Information from this page may be used with proper attribution.
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