First American’s defect, fraud risk index decreased last month
An index which estimates the frequency of defects, fraudulence, and misrepresentation in mortgage applications declined in May.
First American’s Defect Index was down 3.6% year-over-year and 2.4% month-over-month despite an increase in market share for purchase loan applications.
The Defect Index for purchase transactions decreased by 4.6% compared with the previous month, is down 7.8% compared with a year ago, and has declined almost 10% in just the past five months.
First American’s chief economist Mark Fleming says that changes to the way applications are processed in recent years may be helping to cut defects and fraud.
“It’s likely that all of the investment in more digitized, automated, and efficient mortgage manufacturing and underwriting technology that’s been made in recent years is beginning to pay off,” said Fleming. “Now the question is, how much lower will it go?”
The Defect Index for refinance transactions remained the same compared with the previous month and is 4.4% higher than a year ago.
Overall, the index is down more than 21% since its high in October 2013.
Where are defects rising, falling?
The five states with the greatest year-over-year increase in defect frequency are: Arkansas (+12.0%), Wyoming (+7.5%), New Mexico (+7.5%), California (+5.2%) and Virginia (+5.2%).
The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-20.4%), Alabama (-17.2%), Vermont (-15.3%), Minnesota (-14.9%) and Louisiana (-14.0%).
