An increasing share of home purchase transactions is having a negative impact on the risk of defects, fraud and misrepresentation in home-lending applications.
An estimate of mortgage defect and fraud rates over time, the Loan Application Defect Index, was determined to be 2.5 percent more in May than a month earlier.
That left the risk index at the highest level it has been since 2015. Compared to the same month last year, the Defect Index worsened by 13.7 percent.
First American
Financial Corp., which provided the metrics Wednesday, said that risk has declined nearly 19 percent since it peaked in October 2013.
On refinance transactions, a 3 percent month-over-month ascension in risk was recorded, while the year-over-year increase was nearly 10 percent.
Although the Defect Index for purchase-money transactions was up just 1 percent from April, the increase was more than 11 percent versus May 2016.
“The purchase-pivot in the housing market continues to add fuel to the fire of the overall level of application, defect and fraud risk,” First American Chief Economist Mark Fleming said in the report.
“Southern markets are experiencing some of the strongest growth in housing demand, as people seek the lower cost of living compared to northeastern and western markets,” Fleming added. “Where there’s smoking demand, the flames of defect risk typically follow.”
