Fifth Consecutive Month of Increased Defect, Fraud and Misrepresentation Risk Signals Need for Vigilance, According to First American Loan Application Defect Index

—Part of the rise in overall risk is due to the market’s shift toward riskier purchase transactions, but the fact that risk in refinance transactions is also on the rise underscores the need for caution, says Chief Economist Mark Fleming.—

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 April 2017, 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.

April 2017 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 2.5 percent in April 2017 as compared with the previous month.
  • Compared to April 2016, the Defect Index increased by 8.0 percent.
  • The Defect Index is down 20.6 percent from the high point of risk in October 2013.
  • The Defect Index for refinance transactions increased 4.8 percent month-over-month, and is 3.1 percent higher than a year ago.
  • The Defect Index for purchase transactions increased 2.3 percent compared to last month, and is up 7.2 percent compared to a year ago.

Chief Economist Analysis: Five Straight Months of Increased Defect Risk
“The Loan Application Defect Index continued its strong upward increase for the fifth consecutive month,” said Mark Fleming, chief economist at First American. “The pace of defect risk growth is as strong as we have seen since the index began in 2011, adding to the concern over the five-month trend. While we have recently noted that part of the rise in overall risk is due to the market’s shift toward riskier purchase transactions, the fact that risk in refinance transactions is also on the rise underscores the need for caution.”

Additional Quotes from Chief Economist Mark Fleming
“Usually, I emphasize defect risk hot spots in the analysis of our monthly Loan Application Defect Index, focusing on hot spots for rising defect risk. Instead, this month I am highlighting the defect risk ‘cool’ spots, the five markets with the lowest defect risk among the 100 markets we follow,” said Fleming.

                           

Rank

     

Market

     

Defect Index Value

      Year-Over-Year Change
1      

Scranton, Pa.

      55       12.2 percent
2       Toledo, Ohio       63       14.5 percent
3      

Omaha, Neb.

      65       1.6 percent
4       Philadelphia       65       3.2 percent
5       Richmond, Va.       66       1.5 percent

“Scranton, Pennsylvania takes the prize as the ‘coolest’ spot, or the market with the lowest loan application and defect risk in the country,” said Fleming. “But, lenders beware, with a defect risk growth rate of 12.2 percent year-over-year, Scranton may not be cool to defect risk for long. So, what matters more? The risk today or, proverbially, tomorrow?”

April 2017 State Highlights

  • The five states with the greatest year-over-year increase in defect frequency are: South Dakota (+49.1 percent), Wyoming (+43.5 percent), North Dakota (+39.1 percent), West Virginia (+35.1 percent), and Iowa (+29.5 percent).
  • The only two states with a year-over-year decrease in defect frequency are: Connecticut (-2.6 percent) and Oklahoma (-2.2 percent).

April 2017 Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are: Raleigh, N.C. (+32.8 percent); New Orleans (+18.2 percent); Tampa, Fla. (+17.3 percent); Jacksonville, Fla. (+16.5 percent); and Birmingham, Ala. (+14.6 percent).
  • Among the largest 50 CBSAs, the five markets with the greatest year-over-year decrease in defect frequency are: Milwaukee (-10.1 percent); Oklahoma City (-9.1 percent); Detroit (-4.9 percent); Austin, Texas (-4.4 percent); and Louisville/Jefferson, Ky. (-2.6 percent).

Next Release
The next release of the First American Loan Application Defect Index will be posted the week of June 26, 2017.

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. © 2017 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 total revenue of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For® list. More information about the company can be found at www.firstam.com.

Contacts

First American Financial Corporation
Media Contact:
Marcus Ginnaty
Corporate Communications
(714) 250-3298
or
Investor Contact:
Craig Barberio
Investor Relations
(714) 250-5214

Contacts

First American Financial Corporation
Media Contact:
Marcus Ginnaty
Corporate Communications
(714) 250-3298
or
Investor Contact:
Craig Barberio
Investor Relations
(714) 250-5214