FirstAm’s Defect Risk Index helped by lower mortgage rates
Lower mortgage rates helped the risk of defects, misrepresentations, and fraud in mortgage applications reduce during May.
First American’s Loan Application Defect Risk Index was down 5.5% from April with declines of 6.3% for purchase loan apps and 7.2% for refinance loan apps.
“Last month, we predicted that if mortgage rates continued to fall, it may help ease the pressure on fraud risk. Indeed, the 30-year, fixed-rate mortgage fell to its lowest level since January 2018, and fraud risk has fallen alongside it,” said Mark Fleming, chief economist at First American.
Affordability and availability play a key role in reducing the chance of potential homebuyers being less than honest in applications; and market dynamics in recent months have boosted the ability of buyers to afford the home they want and increased supply (up 2.7% year-over-year in May) has reduced competition.
“Following the strong sellers’ market conditions throughout 2018, market dynamics have shifted slightly toward buyers in 2019. Mortgage rates began to decline in January 2019 and are now lower than one year ago,” said Fleming. “Meanwhile, household income, the other component of house-buying power, has continued to increase, rising 2.8% in May compared with one year ago. Falling mortgage rates and rising household income have boosted consumer house-buying power.”
Local diversity
As always in real estate, things vary by market and that is also the case with defect and fraud risk.
“Nationally, the Defect Index declined 9.5% in May compared with three months ago and defect risk declined in all but one market – Columbus, Ohio. Indeed, in some markets, the decline was substantial, exceeding 10% in 20 markets,” said Fleming. “According to our April 2019 Real House Price Index (RHPI), affordability improved in most of the markets where fraud risk declined compared with three months ago, allowing potential home buyers to feel more secure in their purchase and reducing fraud risk.”
The five states with a year-over-year increase in defect frequency are:
- Nebraska (+39.1%)
- Hawaii (+30.1%)
- Iowa (+29.9%)
- New York (+27.6%)
- Pennsylvania (+23.4%)
The five states with a year-over-year decrease in defect frequency are:
- Arkansas (-9.7%)
- Vermont (-4.8%)
- Florida (-3.3%)
- Utah (-2.3%)
- Arizona (-1.3%)
