Fraud And Misrepresentation Risk Concentrating In Florida, According To First American Loan Application Defect Index

- Increased risk in Florida in-part driven by higher concentration of sales to investors, says Chief Economist Mark Fleming -

December 29, 2015, Santa Ana, Calif.,

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the First American Loan Application Defect Index for November 2015, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.

November 2015 Loan Application Defect Index

The First American Loan Application Defect Index fell 1.3 percent in November as compared with October and decreased by 8.2 percent as compared with November 2014. The Defect Index is down 23.5 percent from the high point of risk in October 2013. This is the fourth month-over-month decline in a row of defect and misrepresentation risk, equaling the lowest point in the index since its inception and wiping out the upward trend observed in the first half of the year.  The Defect Index has fallen almost 5 percent over the last three months. The index is well below the level of risk observed during the three years between 2011 and 2013.

The Defect Index for refinance transactions declined 2.9 percent month-over-month, and is now 10.7 percent lower than a year ago. The Defect Index for purchase transactions remained flat month-over-month, and is down 8.6 percent compared to a year ago. Since defect risk for both purchase and refinance transactions peaked in late 2013, defect risk on refinance transactions continues to decline much more than defect risk for purchase transactions, declining 33 percent as compared to 18.3 percent for purchase transactions.

"While fraudulent and misrepresentative loan applications are continuing to decline, a few large markets remain at risk.  In particular, the concentration of risk in Florida is a concern. All the major metropolitan areas in Florida are above the national average, and Miami ranks second among the top 100 markets nationally," said Mark Fleming, chief economist at First American. "Luckily, while the risk of loan defects in Florida is significantly higher than the national average, the risk is following the same downward trend as the national average.  In fact, fraud and misrepresentation risk is down 7 percent over the last three months."

November 2015 State Highlights

  • The five states with the highest month-over-month increase in defect frequency are: District of Columbia (+3.9 percent), South Carolina (+3.8 percent), West Virginia (+3.6 percent), New Hampshire (+3.3 percent) and Iowa (+1.6 percent).
  • The five states with the highest month-over-month decrease in defect frequency are: Montana (-5.5 percent), Michigan (-4.3 percent), Rhode Island (-4.2 percent), Hawaii (-3.4 percent) and Texas (-3.3 percent).

November 2015 Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the highest month-over-month increase in defect frequency are: Columbus, Ohio (+1.4 percent); Kansas City, Mo. (+1.4 percent); Washington, D.C. (+1.4 percent); Memphis, Tenn. (+1.3 percent); and Nashville, Tenn. (+1.3 percent).
  • Among the largest 50 CBSAs, the five markets with the highest month-over-month decrease in defect frequency are: Detroit (-5.9 percent); Hartford, Conn. (-5.3 percent); San Antonio (-5.1 percent); Austin, Texas (-4.1 percent); and Houston (-3.1 percent). 

Occupancy and Property Type Increase Defect Risk

The intended occupancy type of a home purchase or mortgage refinance can be very predictive of the risk of mortgage loan misrepresentation and even fraud.  Our indices by occupancy status show a very consistent rank ordering of increasing risk from owner-occupied, to second home, to investor properties.  In November, investor-occupied applications were 29 percent riskier than owner-occupied applications. The increased investor-based risk can also be seen in multi-unit applications, a popular property type among investors.  In fact, multi-unit properties are 30 percent more likely to have defect and misrepresentation risk than a single-family home.

"With misrepresentation and fraud risk falling overall, we can focus on the types of loan transactions that are the riskiest. Multi-unit investment properties jump out as significantly more prone to loan application defect risk than other occupancy or property types," said Fleming. "Miami’s high overall risk-ranking may well be due to that market’s increased share of investment activity."

Next Release

The next release of the First American Loan Application Defect Index will be posted on January 26, 2016. 


The methodology statement for the First American Loan Application Defect Index is available at


Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2015 by First American. Information from this page may be used with proper attribution. 

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $4.7 billion in 2014, the company offers its products and services directly and through its agents throughout the United States and abroad. More information about the company can be found at