Mortgage Loan Application Defect Incidence Falls 5.8 Percent In June

- Houston and other oil-dependent markets deserve watching says First American Chief Economist Mark Fleming -

July 23, 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 June 2015, which estimates the frequency of defects 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-level comparisons of levels of mortgage loan defects.

June 2015 Loan Application Defect Index

The Defect Index fell 5.8 percent in June as compared with May and decreased by 11.0 percent as compared with June 2014, and is down 21.4 percent from the high point of risk in September 2013. The Defect Index improved month-over-month, but has shown a pronounced increase year-to-date of 5.2 percent. The frequency of loan application defects had shown a consistent downward trend since the peak in 2013 until the beginning of this year. Refinance transactions have shown some of the biggest improvements, with estimated defect incidence down 5.5 percent month-over-month and 14.8 percent over a year ago. Adjustable-rate mortgages, a loan type with a consistently higher level of application defects, are also showing significant recent improvement with a 3.6 percent decline from last month and a 13.1 percent decline year-over-year.

"It’s reassuring to see the national mortgage loan defect trend, which had been increasing since the beginning of 2015, now partially reversing.  However, the geographic distribution of defect frequency continues to concentrate in key markets in the south, particularly in Florida and Texas, as well as in the Northeast and upper Midwest," said Mark Fleming, chief economist at First American. "Most major metropolitan areas in Florida and Texas have defect frequency levels above the current national level."

June 2015 State Highlights

  • The five states with the highest month-over-month increase in defect incidence are: South Dakota (+3.7 percent), Alaska (+2.7 percent), the District of Columbia (+2.4 percent), Texas (+0.0 percent) and Virginia (-1.3 percent).
  • The five states with the highest month-over-month decrease in defect incidence are: Montana (-15.5 percent), Vermont (-12.4 percent), Wyoming (-12.3 percent), Massachusetts (-11.9 percent) and Maine (-11.9 percent).

June 2015 Local Market Highlights

  • Among the largest 100 Core Based Statistical Areas (CBSAs), the five markets with the highest quarter-over-quarter increase in defect incidence are: Louisville, Ky. (+31.7 percent); Austin, Texas (+22.4 percent); Houston (+22.2 percent); McAllen, Texas (+21.6 percent) and Grand Rapids, Mich. (+20.0 percent).
  • Among the largest 100 CBSAs, the five markets with the highest quarter-over-quarter decrease in defect incidence are: Rochester, N.Y. (-22.9 percent); Jackson, Miss. (-18.8 percent); Palm Bay, Fla. (-9.5 percent); Little Rock, Ark. (-8.5 percent) and Birmingham, Ala. (-8.4 percent)

Market Close Up: Houston’s Oil Dependency Increases Stress

Over the past year, the Loan Application Defect Index for Houston is up 5.3 percent.  Only two markets (Austin, Texas and Detroit) have increased more in the last year. Houston and other U.S. energy-related markets in Texas and the Dakotas deserve watching in the coming months as fluctuations in global energy markets create stressful local economic conditions.

"This month, we focus on Houston because of the regularly cited concern that it is susceptible to the stress of low global oil prices. In fact, the recent announcement of a nuclear agreement with Iran caused oil prices to fall and raised concerns for U.S. shale production," said Fleming "Desperate times call for desperate measures, and to the extent that economic stress is impacting some households in Houston, the Defect Index is reflecting this stress." 

Next Release

The next release of the First American Loan Application Defect Index will be posted on August 26, 2015. 


The First American Loan Application Defect Index estimates the level of defects detected in the information submitted in mortgage loan applications processed by the First American FraudGuard® system. The index is based on the frequency with which defect indicators are identified.  The Defect Index moves higher as greater numbers of defect indicators are identified. An increase in the index indicates a rising level of loan application defects. The index, nationally and in all markets, is benchmarked to a value of 100 in January 2011. Therefore, all index values can be interpreted as the percentage change in defect frequency relative to the defect frequency identified nationally in January 2011.


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