As the share of refinance mortgage originations continues to subside, more risky financing for home purchases is driving up the level of mortgage fraud risk.
As of January, the Loan Application Defect Index — an estimate of the frequency of defects, fraud and misrepresentation on mortgage applications — was 73.
Compared with the final month of last year, the index
moved higher by almost 6 percent. But a 4 percent year-over-year reduction in the index was recorded.
First American Financial Corp., which reported the index Friday,
noted that it was the second consecutive month-over-month increase.
“The overall index increase is largely the result of waning refinance activity in the mortgage market,” Mark Fleming, chief economist at the Santa Ana, California-based company, said in the report. “Defect, misrepresentation and fraud risk is significantly lower on refinance transactions, so the increased risk of misrepresentation and fraud is due to the increasing share of higher risk purchase transactions within the mortgage market.”
According to the report,
the Defect Index for refinances rose 4 percent from December 2016 but was 9 percent lower than in January 2015.
Risk was up 3 percent on purchase financing transactions from a month earlier and off 1 percent from a year earlier.
Arkansas’ index last month was 91, higher than any other state. Louisiana’s 89 followed, then 84 in Florida, Mississippi and Montana.
At just 57, New Hampshire had the lowest index.
Compared to a year earlier, the index in Wyoming was up nearly a third — the worst deterioration.
The index is based on
the level of defects detected in the information submitted in applications processed by the First American’s FraudGuard system.
