—The question is not if defect risk will continue to increase, but
when will it stop, says Chief Economist Mark Fleming—
SANTA ANA, Calif.--(BUSINESS WIRE)--
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 November 2018, 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.
November 2018 Loan Application Defect Index
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The frequency of defects, fraudulence and misrepresentation in the
information submitted in mortgage loan applications increased by 2.5
percent compared with the previous month.
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Compared to November 2017, the Defect Index decreased by 2.4 percent.
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The Defect Index is down 20.5 percent from the high point of risk in
October 2013.
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The Defect Index for refinance transactions increased by 2.8 percent
compared with previous month, and is up 5.8 percent compared with a
year ago.
-
The Defect Index for purchase transactions increased by 2.4 percent
compared with the previous month, and is down 7.7 percent compared
with a year ago.
Chief Economist Analysis: Defect Risk Rises Nationally, Partially
Influenced by Rising Defect Risk in California Wildfire Areas
“In November, the Loan
Application Defect Index for purchase transactions continued its
string of month-over-month increases, rising for the third month in a
row. Yet, year over year, the Defect Index for purchase transactions
remains 7.7 percent below its level in November 2017,” said Mark
Fleming, chief economist at First American. “The Defect Index for
refinance transactions also increased 2.8 percent compared to the
previous month and is 5.8 percent higher than a year ago. The overall
Defect Index, which includes both purchase and refinance transactions,
increased 2.5 percent compared with October, but declined 2.4 percent
year over year.”
Fraud and Defect Risk Follows Historic Trends in Wildfire-Impacted
Areas
“The staggering scope of the damage and loss of life from California’s
early November wildfires continues to grow. The Camp Fire in Butte
County, the
deadliest U.S. wildfire in a century, impacted 16,735 properties
worth $3.8 billion, according to data from DataTree
by First American,” said Fleming. “This number is even higher when
you consider other insured losses, in addition to the value of the home.
The Woolsey Fire, which spanned Los Angeles and Ventura counties, was
slightly smaller in size, but also had a devastating impact and
ultimately destroyed
over 1,600 structures.
“Historical data indicates that natural disasters and loan application
defect risk go hand-in-hand, as they increase the potential for
misrepresentation of collateral condition,” said Fleming. “Last
month, we discussed the potential implications of the recent
California wildfires on mortgage fraud risk, and after examining the
first month of data, it appears historical trends are playing out.
“Following the Woolsey and Camp fires, defect and fraud risk has
increased in all three of the affected metropolitan areas,” said
Fleming. “Fraud and defect risk increased the most in Oxnard, rising 6.0
percent compared to October, followed by Los Angeles (3.3 percent) and
San Francisco (2.8 percent). Before the November increase, fraud and
defect risk was relatively flat in all three metropolitan areas.
“The tragic impacts of the Woolsey and Camp fires continue to be
assessed and, unfortunately, appear to include rising fraud and defect
risk,” said Fleming. “Given historical trends, the question is not if
defect risk will continue to increase, but when will it stop.”
November 2018 State Highlights
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The five states with a year-over-year increase
in defect frequency are: Alaska (+19.5 percent), Hawaii (+15.4
percent), West Virginia (+13.3 percent), Maine (+12.5 percent), and
New York (+11.7 percent).
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The five states with the greatest year-over-year decrease
in defect frequency are: Vermont (-24.0 percent), Minnesota (-15.5
percent), Florida (-14.1 percent), Arizona (-14.1 percent), and
Arkansas (-12.4 percent).
November 2018 Local Market Highlights
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Among the largest 50 Core Based Statistical Areas (CBSAs), the five
markets with the greatest year-over-year increase
in defect frequency are: San Diego (+20.3 percent), Richmond, Va.
(+17.4 percent), Los Angeles (+14.8 percent), Buffalo, N.Y. (+13.4
percent), and Pittsburgh (+12.1 percent).
-
Among the largest 50 Core Based Statistical Areas (CBSAs), the five
markets with the largest year-over-year decrease
in defect frequency are: Houston (-20.2 percent), Minneapolis (-18.5
percent), Jacksonville, Fla. (-17.5 percent), Tampa, Fla. (-15.8
percent), and Birmingham, Ala. (-14.6 percent).
Next Release
The next release of the First American Loan Application Defect Index
will take place the week of January 28, 2019.
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. © 2018 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; banking, trust and
wealth management services; and other related products and services.
With total revenue of $5.8 billion in 2017, the company offers its
products and services directly and through its agents throughout the
United States and abroad. In 2018, First American was named to the Fortune 100
Best Companies to Work For® list for the third consecutive
year. More information about the company can be found at www.firstam.com.
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Media Contact:
Marcus Ginnaty
Corporate Communications
First
American Financial Corporation
(714) 250-3298
Source: First American Financial Corporation