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Survey: Risk of Mortgage Fraud, Misrepresentations or Defects Continues to Decline

Defect, fraud and misrepresentation risk is falling across the United States, and decreasing to very low levels in some markets, according to First American’s latest Loan Application Defect Index.

Data shows that 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. Since last year, the defect index has decreased by 14.8 percent.

“The widespread implementation of data- and technology-enabled loan manufacturing processes is benefiting consumers across the country,” says Chief Economist Mark Fleming. “The mortgage finance industry continues to improve, producing loans with fewer defects and producing those loans right the first time.”

According to Fleming, 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.

“The market is in transition toward a greater volume of riskier purchase loans, away from a market dominated by lower risk refinance loans,” Fleming added. “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.”

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.

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)
  • 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)
  • Nevada (-19.7 percent)



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It might be interesting to also see aggregates of fraud, misrepresentations or loan defects by geographic area. For example, are certain types of issues concentrated or more commonplace in certain geographic regions, or perhaps in markets showing similar characteristics (such as rising sales, or home prices, for example)?

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