Refis, Compliance Help Reduce Mortgage App Risk

For the month of July, the U.S. Loan Application Defect Index, an estimate of the level of defects on residential loan applications, was
70.

Risk improved from the previous month, with the index falling nearly 3 percent.
The index has tumbled almost 17 percent from a year previous.

The index is published by First American
Financial Corp. based on defects detected in the information submitted in applications processed through its FraudGuard system.

Compared to October 2013, the month with the highest risk, the index has been reduced by more than 31 percent.

First American Chief Economist Mark Fleming explained in the report, “The defect index continues to improve as the share of refinance activity in the market remains strong. … To the extent that lower defect-risk refinance applications continue to occupy a large share of the mortgage market, the overall index will benefit.”

The Mortgage Bankers Association reported Wednesday that refinance share of new loan applications was nearly 64 percent in the week ended Aug. 26.

While the defect index for refinances fell nearly 2 percent on a month-over-month basis and more than 18 percent on a year-over-year basis, the index for purchase financing applications was down just 1 percent from a month earlier and 13 percent from a year earlier.

Fleming added that risks, especially on refinance transactions, have been reduced by
compliant loan production processes.

The index in Michigan was down a third from July 2015 — the biggest improvement of any state.

Florida followed with a one-quarter drop, then New Mexico’s 21 percent, Connecticut’s nearly 21 percent and New Hampshire’s one-fifth decline.

At the other end of the spectrum was Maine, where the defect index was up nearly 17 percent from the year-earlier period. North Dakota was next with a 12 percent rise, then Missouri’s 6 percent and Montana’s 3 percent.