An increase in higher-risk purchases and an uptick in adjustable rate mortgages in a strong spring selling season could lead to increased fraud risk, First American Financial Corporation Chief Economist Mark Fleming warns.
The for February 2017 estimates the frequency of defects, fraudulence and misrepresentation of information submitted in mortgage loan applications. Major findings in the latest index include:
The February frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 4.1 percent month-to-month.
Year-to-year (February 2016), the Defect Index increased by 1.3 percent.
The Defect Index is down 25.5 percent from the high point of risk in October 2013.
The Defect Index for refinance transactions increased 3.4 percent month-over-month, but it dropped 6.2 percent year-to-year.
The Defect Index for purchase transactions increased 2.4 percent month-to-month and the same amount (2.4 percent) year-to-year.
“Defect, fraud and misrepresentation risk continues to respond to the shift in market composition,” says Fleming. “Rising mortgage rates continue to increase the share of higher risk purchase loan applications, but they’re also incenting more borrowers to apply for ARMs (adjustable rate mortgages). The savings for the consumer can be significant, but ARM loan applications have historically had higher defect, misrepresentation and fraud risk.”
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