Defects on mortgage applications rose for the first time in eight months, and it was deterioration on government mortgages that was behind the increase.
The
March 2016 Loan Application Defect Index, which is an estimate of the level of defects detected on residential loan applications, came in at 76.
The index was benchmarked at 100 as of January 2011. Because it now stands lower then the benchmark level, less defect indicators are being detected.
First American Financial Corp. maintains the index based on an estimate of the frequency of defects, fraudulence and misrepresentation in the information submitted on loan applications processed through its FraudGuard system.
But while the index has retreated since 2011, it was 1 percent higher than the low reached in February 2016. Last month’s rise was the first since July.
“While February 2016 is now the new low point for the index, it’s too early to know if the increase in misrepresentation and fraud risk in March is the beginning of a long-term upward trend or a short-term adjustment,” First American Chief Economist Mark Fleming said in the report.
Still, the index
sits nearly 3 percent lower than it did in March 2015.
Fleming noted that while the risk index on conventional loans was unchanged in March, risk ascended on government mortgages.
On loans insured by the Federal Housing Administration, guaranteed by the Department of Veterans Affairs and backed by the Department of Agriculture — risk increased by 1.4 percent from February.
Fleming explained that despite the month-over-month blip, risk remains lower than its been over the past half-decade.
“Improved loan manufacturing compliance, underwriting consistency and risk management are finally paying off for the industry with less defect, misrepresentation and fraud risk,” he said.
The index in Oklahoma was 90, higher than any other state. Florida followed with an index of 88. Next was South Carolina’s 87, Hawaii’s 85 and Texas’ 85.
Risk in North Dakota was up by a fifth from March 2015, the biggest year-over-year increase of any state.
After that was a 16 percent rise in Kentucky, followed by a 14 percent increase
in Utah, a 13 percent escalation in Missouri and 9 percent deterioration in the District of Columbia.
With a 16 percent decline in risk from a year earlier, Michigan had the most improvement.
