NATNews Blog > November 2016 > A North-South divide emerges in defect, fraud and misrepresentation risk

    A North-South divide emerges in defect, fraud and misrepresentation risk

    11/30/2016 9:11:14 AM

    First American released its October 2016 Loan Application Defect Index, showing a further decrease in the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications, with the highest levels of risk emerging in the South.
     
    “Defect, fraud and misrepresentation risk can vary substantially by location. In fact, the most recent data is showing a growing division between the North and South,” said Mark Fleming, chief economist at First American. “Cotton states in the South are showing the highest levels of risk, compared to the northern rust-belt, where application and defect risk is currently the lowest.”

    Highlights include:
    • Defect risk is concentrating in the South, particularly in Arkansas and Louisiana, as well as in large markets in Texas and South Carolina.
    • McAllen, Texas; Houston; Columbia, South Carolina; Birmingham, Alabama, and Charleston South Carolina, currently have the highest loan application defect and misrepresentation risk in the nation.
    • New Orleans; Baton Rouge, Louisiana, and Little Rock, Arkansas are also ranked highly for defect risk among the largest 100 metropolitan areas of the country.
    • Comparatively, markets in the northeast states of New York, Pennsylvania and Ohio have the least loan application defect and misrepresentation risk.
     
    “The post-election sudden increase in mortgage rates has accelerated the shift away from a refinance-driven market toward a purchase-dominated market,” noted Fleming. “Based on analysis of loan application defect risk trends, purchase loans are riskier, so I expect that the overall decline in loan application and defect risk will slow as rates continue to rise into 2017 and the share of higher risk purchase loans increases.”
     
    The First American Loan Application Defect Index showed that in October 2016:
    • The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications, decreased 1.4 percent in October as compared with September.
    • Compared to October 2015, the Defect Index decreased by 13.9 percent.
    • The Defect Index is down 33.3 percent from the high point of risk in October 2013.
    • The Defect Index for refinance transactions decreased 1.7 percent month-over-month, and is 15.9 percent lower than a year ago.
    • The Defect Index for purchase transactions is unchanged compared to last month, and is down 5.9 percent compared to a year ago.
     
    For more information and to view detailed charts, visit www.firstam.com/economics/defect-index/.