Millennial First-Time Homebuyer Demand Does Not Increase Defect, Fraud and Misrepresentation Risk, According to First American Loan Application Defect Index
Defect, fraud and misrepresentation risk is falling practically everywhere in the country, and falling to very low levels in some markets, says Chief Economist Mark Fleming
October 31, 2016, 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 September 2016, 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.
September Loan Application Defect Index
- The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications, decreased 1.4 percent in September as compared with August.
- Compared to September 2015, the Defect Index decreased by 14.8 percent.
- The Defect Index is down 32.3 percent from the high point of risk in October 2013.
- The Defect Index for refinance transactions is unchanged compared to last month, and is 16.9 percent lower than a year ago.
- The Defect Index for purchase transactions increased 1.3 percent month-over-month, and is down 8.0 percent compared to a year ago.
Chief Economist Analysis: Millennial First-Time Homebuyer Demand Does Not Increase Defect, Fraud and Misrepresentation Risk
“More data-driven evidence is mounting that the Millennial first-time homebuyer is playing an increasingly important role in the housing and mortgage finance markets,” said Mark Fleming, chief economist at First American. “The market is in transition toward a greater volume of riskier purchase loans, away from a market dominated by lower risk refinance loans. Yet, overall the defect index continues to decline, which is a testament to the effort the mortgage finance industry is making to improve the loan production process.”
Benefits of Reduced Risk Are Widespread
“Defect, fraud and misrepresentation risk is falling practically everywhere in the country, and falling to very low levels in some markets,” said Fleming. “The widespread implementation of data- and technology-enabled loan manufacturing processes is benefiting consumers across the country. The mortgage finance industry continues to improve, producing loans with fewer defects and producing those loans right the first time.”
Additional Quotes from Chief Economist Mark Fleming
- “The defect risk levels across different markets are becoming more homogenous because the benefits of more robust and data-driven loan production processes apply equally from market to market.”
- “The dispersion, or amount of difference in defect risk across markets, has declined 18.6 percent over the past year.”
- “All 100 of the major metropolitan areas tracked have had a defect, fraud, and misrepresentation level below the benchmark national January 2011 level since February of this year.”
- “Three markets – Scranton, Pa.; Rochester, N.Y. and Toledo, Ohio – have risk levels that are 50 percent below the benchmark national level.”
September 2016 State Highlights
- The five states with the highest year-over-year increase in defect frequency are: Maine (+25.5 percent), North Dakota (+14.8 percent), South Dakota (+11.3 percent), Vermont (+10.4 percent), and Missouri (+7.2 percent).
- The five states with the highest year-over-year decrease in defect frequency are: Michigan (-26.5 percent), Florida (-24.2 percent), California (-21.0 percent), Oklahoma (-19.8 percent), and Nevada (-19.7 percent).
September 2016 Local Market Highlights
- Among the largest 50 Core Based Statistical Areas (CBSAs), the only market with year-over-year increase in defect frequency is: St. Louis (+1.4 percent).
- Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in defect frequency are: Detroit (-31.8 percent); Louisville/Jefferson, Ky. (-28.2 percent); Orlando, Fla. (-27.8 percent); Oklahoma City (-27.8 percent); and Dallas (-24.5 percent).
The next release of the First American Loan Application Defect Index will be posted the week of November 28, 2016.
The methodology statement for the First American Loan Application Defect Index is available at http://www.firstam.com/economics/defect-index.
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. © 2016 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 $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the company can be found at www.firstam.com.