Defect Risk Rising in Natural Disaster-Impacted Markets, According to First American Loan Application Defect Index

Four of the top five markets with the greatest increases in defect risk are in Florida and Texas, says Chief Economist Mark Fleming


November 30, 2017, 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 October 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 loan type. It is 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, and can provide state- and market-specific comparisons of mortgage loan defect levels. 

October 2017 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications remained the same as compared with the previous month.
  • Compared with October 2016, the Defect Index increased by 22.1 percent.
  • The Defect Index is down 18.6 percent from the high point of risk in October 2013.
  • The Defect Index for refinance transactions decreased 1.4 percent month-over-month, and is 19.0 percent higher than a year ago.
  • The Defect Index for purchase transactions remained unchanged compared with the previous month, and is up 12.5 percent from a year ago.   

Chief Economist Analysis: Defect Risk Increases in Florida and Texas Markets Validate Correlation Between Natural Disasters and Defect Risk

“The surge in defect, fraud and misrepresentation risk that started a year ago has finally lost momentum,” said Mark Fleming, chief economist at First American. “The Loan Application Defect Index has either remained unchanged or declined in every month since July, and the index value is the same level as in the summer of 2015. Nationally, defect, fraud and misrepresentation risk has stabilized, but the local impact of recent natural disasters remains a concern.” 

“The data seems to validate our belief that there is a correlation between natural disasters and rising loan application defect risk. Our defect, fraud and misrepresentation risk index shows the largest month-over-month increases in defect risk are in hurricane-impacted markets,” said Fleming. “Even Houston, one of the largest markets in the country, is not immune to the rising defect risk.” 

Additional Quotes from Chief Economist Mark Fleming

  • “Based on data from previous natural disasters, we recently highlighted the potential for increased mortgage loan application fraud risk in the hurricane-impacted states of Florida and Texas, particularly fraudulent or unintentional misrepresentation of collateral condition.”
  • “This month, four of the five markets with the greatest increases in defect risk compared with September are in Florida and Texas.”
  1. Lakeland, Fla. (+11.9 percent)
  2. Virginia Beach, Va. (+8.4 percent)
  3. Cape Coral, Fla. (+5.9 percent)
  4. Orlando, Fla. (+5.9 percent)
  5. Houston (+5.6 percent)
  • “In fact, looking at the national map, there is a clear concentration of defect risk across the southern part of the country.” 

October 2017 State Highlights

  • The five states with the greatest year-over-year increase in defect frequency are: South Dakota (+50.8 percent), North Dakota (+47.1 percent), New Mexico (+38.5 percent), Iowa (+38.3 percent) and Idaho (+36.0 percent).
  • There is one state with a year-over-year decrease in defect frequency: Connecticut (-4.3 percent). 

    October 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: Virginia Beach, Va. (+47.5 percent), Raleigh, N.C. (+34.8 percent), Orlando, Fla. (+28.6 percent), Kansas City, Mo. (+27.4 percent) and Louisville, Ky. (+27.1 percent).
  • There is one CBSA among the largest 50 CBSAs with a year-over-year decrease in defect frequency: Hartford, Conn. (-1.6 percent). 

    Next Release

    The next release of the First American Loan Application Defect Index will take place the week of December 25, 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.

###

myFirstAm®

Access the powerful online services available only at First American.

Sign In
Forgot Username or Password?

Sign Up

Sign up for a myFirstAm® account.

Other Platforms

  • myFirstAm®

    Track orders, calculate fees, and set milestone alerts.

  • FASTWeb

    Title ordering, routing and tracking.

  • AgentNet®

    eJackets, closing protection letters, back title, bulletins and more.

  • DataTree.com

    Access the nation's largest land record database.

  • Home Warranty

    Coverage for a home's major systems and appliances.