Mortgage Loan Application Defect Incidence Rises 4.9 Percent In July

- Defect risk remains concentrated in Florida and Texas says Chief Economist Mark Fleming -

August 31, 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 July 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.

July 2015 Loan Application Defect Index

The Defect Index rose 4.9 percent in July as compared with June and decreased by 5.6 percent as compared with July 2014. The Defect Index, which reflects estimated mortgage loan defect rates over time, by geography and by loan type, is down 17.5 percent from the high point of risk in September 2013. After improving last month, the Defect Index worsened month-over-month, following the pronounced year-to-date trend, which has the Index up 10.4 percent. The frequency of loan application defects had shown a consistent downward trend since the peak in 2013 until the beginning of 2015.

The Defect Index for refinance transactions, while still 6.3 percent lower than a year ago, has increased more dramatically in recent months, with estimated defect incidence up 8.7 percent month-over-month and 7.1 percent over the last three months. While adjustable-rate mortgages, a loan type with a consistently higher level of application defects, remain higher risk, fixed-rate mortgage defect risk surged with an 8.4 percent increase from last month and a 9.6 percent increase over the last three months. 

"After seeing improvement in the national mortgage loan defect trend last month, the index has returned to the trend of increasing risk that we have observed since the beginning of 2015. What remains consistent from last month is the concentration of defect risk in the same handful of 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. "This month, major metropolitan areas in Florida and Texas continue to produce defect frequency levels well above the current national level."

July 2015 State Highlights

  • The five states with the highest month-over-month increase in defect frequency are: Oklahoma (+14 percent), Hawaii (+13.1 percent), Louisiana (+10 percent), Texas (+10 percent) and Colorado (+9.3 percent).
  • The five states with the highest month-over-month decrease in defect frequency are: Iowa (-11.4 percent), Massachusetts (-5.4 percent), Alaska (-5.3 percent), the District of Columbia (-4.7 percent) and West Virginia (-3.1 percent).

July 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 frequency are: Oklahoma City, Okla. (+28.2 percent); Houston (+25.6 percent); McAllen, Texas (+25.0 percent); Austin, Texas (+21.3 percent) and Louisville, Ky. (+19.7 percent).
  • Among the largest 100 CBSAs, the five markets with the highest quarter-over-quarter decrease in defect frequency are: Rochester, N.Y. (-28.6 percent); Wichita, Kan. (-12 percent); Richmond, Va. (-9.5 percent); Dayton, Ohio (-8.1 percent) and Springfield, Mass. (-6.9 percent).

Market Close Up: The Rise of Fraud in the Sunshine State

Over the past three months, the Loan Application Defect Index for Florida is up 4 percent and has historically remained consistently higher than the national level of risk. This month, Florida ranks second, behind Michigan, among all states for defect risk. At the market level, Miami is the third riskiest large metropolitan market in the country. 

"This month, we focus on Florida because it is the second riskiest state in the nation and continues to struggle with the foreclosure crisis.  While the condo market in Miami may have recovered dramatically, the stock of foreclosed properties remains high in many Florida markets," said Fleming. "High levels of investor-owned condominium purchases in Miami and foreclosures throughout the state are all being reflected in the elevated defect risk that we are observing this year."

Next Release

The next release of the First American Loan Application Defect Index will be posted on September 23, 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