While there was no month-over-month increase in the risk of fraud on new applications, risk is up from a year ago. Rising rates could drive risk higher.
The national
Loan Applications Defect Index was determined to be 84 during July, no different than it was in the preceding month.
The index is an estimate of the frequency of defects, fraudulence and misrepresentation in the information presented on home-loan applications.
But compared to the same month last year, the index has deteriorated by 20 percent.
First American Financial Corp. reported the index Thursday.
On refinances, the index has worsened by 20 percent from a year ago, while risk on purchases was up just 15 percent.
“Finally, after seven consecutive months of increasing defect, fraud, and misrepresentation risk, no change compared to last month is welcome news,” First American Chief Economist Mark Fleming said in the report. “In particular, purchase transactions, which are inherently more at risk of defects, fraud and misrepresentation, showed no increase compared to a month ago.
“One month doesn’t establish a trend, so it will be important to see if we’ve reached a turning point in the long-run trend of increasing defect risk.”
Fleming noted that a potential bump in rates by the Federal Open Market Committee during September
could drive up adjustable-rate mortgage share and the higher risk that accompanies ARMs.
Montana’s overall index was 104 last month — more than any other state. After that was Arkansas’ 103, then North Dakota’s 102. Vermont’s 101 and Mississippi’s 98.
New Hampshire had an index of 70 — lower than any other state.
