Mortgage Fraud And Misrepresentation Risk Very Low In Iowa, According To First American Loan Application Defect Index

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 December 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.

December 2015 Loan Application Defect Index

The First American Loan Application Defect Index fell 2.6 percent in December as compared with November and decreased by 8.4 percent as compared with December 2014. The Defect Index, which reflects estimated mortgage loan defect rates over time, by geography and by loan type, is down 25.5 percent from the high point of risk in October 2013.

This is the fifth month-over-month decline in a row of defect and misrepresentation risk, equaling the lowest point in the index since its inception. The Defect Index has fallen 6.2 percent over the last three months. While it’s difficult to know what a normalized level of defect risk is, the index value of 76 is significantly lower than in the three years between 2011 and 2013, when the index was consistently above a value of 90.

The Defect Index for refinance transactions declined 1.5 percent month-over-month, and is now 10.8 percent lower than a year ago. The Defect Index for purchase transactions declined 1.2 percent month-over-month, and is down 7.7 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 34 percent as compared to 19.2 percent for purchase transactions.

"As with many housing market statistics today, the misrepresentation and defect risk trend is consistently for the better. Risk at the high end continues to improve, causing our dispersion index to decline by another point on a month-over-month basis," said Mark Fleming, chief economist at First American. "High-risk markets like Miami; McAllen, Texas; and Cape Coral, Fla., are improving quickly and reducing the risk at the high end of the dispersion distribution. This year, we expect to see fraud and misrepresentation risk continue to decline."
 

December 2015 State Highlights

• The five states with the highest month-over-month increase in defect frequency are: South Carolina (+4.8 percent), Maine (+4.2 percent), Vermont (+2.8 percent), Rhode Island (+1.4 percent) and Kentucky (+1.4 percent).
• The five states with the highest month-over-month decrease in defect frequency are: Alaska (-10.8 percent), Mississippi (-5.6 percent), New Mexico (-5.3 percent), Montana (-4.3 percent) and Indiana (-4.1 percent).
   

December 2015 Local Market Highlights

• Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the highest year-over-year increase in defect frequency are: Louisville, Ky. (+12.5 percent); Houston (+8.1 percent); Oklahoma City (+3.5 percent); Salt Lake City (+2.7 percent); and Dallas (+2.4 percent).
• Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in defect frequency are: Detroit (-22.0 percent); Birmingham, Ala. (-20.2 percent); Minneapolis (-19.6 percent); Cincinnati (-18.3 percent); and Pittsburgh (-17.3 percent).
  
  

Measuring Defect Risk on the Campaign Trail

With the Iowa caucus, opening this year’s presidential election process, less than a week away, we consider the state of defect, fraud and misrepresentation risk in the state. Iowa defect and misrepresentation risk has declined by almost nine percent in the past year and has one of the lowest levels of risk among all 50 states. Misrepresentation and fraud risk has declined 23 percent from Iowa’s high point in September 2014.  Among the largest 100 markets in the country, Des Moines is the fifth least risky market, only Syracuse, N.Y.; Rochester, N.Y.; Harrisburg, Pa. and Greensboro, S.C. are less risky.

"The presidential campaign goes into full swing next week with the opening caucus in Iowa. The state’s level of defect and misrepresentation risk is one of the lowest in the country, making Des Moines one of the least risky major markets," said Fleming. "Iowans may be up very late next week caucusing, but this is one state that doesn’t keep me awake at night worrying about mortgage fraud risk."

Next Release

The next release of the First American Loan Application Defect Index will be posted on February 23, 2016.
 

Methodology

The methodology statement for the First American Loan Application Defect Index is available at http://www.firstam.com/economics/defect-index.
 

Disclaimer

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 $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 www.firstam.com.