—Defect risk remains concentrated in Florida and Texas says Chief
Economist Mark Fleming—
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 July 2015, which
estimates the frequency of defects 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-level comparisons of levels of
mortgage loan defects.
July 2015 Loan Application Defect Index
The Defect Index rose 4.9 percent in July as compared with June and
decreased by 5.6 percent as compared with July 2014. The Defect Index,
which reflects estimated mortgage loan defect rates over time, by
geography and by loan type, is down 17.5 percent from the high point of
risk in September 2013. After improving last month, the Defect Index
worsened month-over-month, following the pronounced year-to-date trend,
which has the Index up 10.4 percent. The frequency of loan application
defects had shown a consistent downward trend since the peak in 2013
until the beginning of 2015.
The Defect Index for refinance transactions, while still 6.3 percent
lower than a year ago, has increased more dramatically in recent months,
with estimated defect incidence up 8.7 percent month-over-month and 7.1
percent over the last three months. While adjustable-rate mortgages, a
loan type with a consistently higher level of application defects,
remain higher risk, fixed-rate mortgage defect risk surged with an 8.4
percent increase from last month and a 9.6 percent increase over the
last three months.
“After seeing improvement in the national mortgage loan defect trend
last month, the index has returned to the trend of increasing risk that
we have observed since the beginning of 2015. What remains consistent
from last month is the concentration of defect risk in the same handful
of key markets in the south, particularly in Florida and Texas, as well
as in the Northeast and upper Midwest,” said Mark Fleming, chief
economist at First American. “This month, major metropolitan areas in
Florida and Texas continue to produce defect frequency levels well above
the current national level.”
July 2015 State Highlights
-
The five states with the highest month-over-month increase
in defect frequency are: Oklahoma (+14 percent), Hawaii (+13.1
percent), Louisiana (+10 percent), Texas (+10 percent) and Colorado
(+9.3 percent).
-
The five states with the highest month-over-month decrease
in defect frequency are: Iowa (-11.4 percent), Massachusetts (-5.4
percent), Alaska (-5.3 percent), the District of Columbia (-4.7
percent) and West Virginia (-3.1 percent).
July 2015 Local Market Highlights
-
Among the largest 100 Core Based Statistical Areas (CBSAs), the five
markets with the highest quarter-over-quarter increase
in defect frequency are: Oklahoma City, Okla. (+28.2 percent); Houston
(+25.6 percent); McAllen, Texas (+25.0 percent); Austin, Texas (+21.3
percent) and Louisville, Ky. (+19.7 percent).
-
Among the largest 100 CBSAs, the five markets with the highest
quarter-over-quarter decrease in defect
frequency are: Rochester, N.Y. (-28.6 percent); Wichita, Kan. (-12
percent); Richmond, Va. (-9.5 percent); Dayton, Ohio (-8.1 percent)
and Springfield, Mass. (-6.9 percent).
Market Close Up: The Rise of Fraud in the Sunshine State
Over the past three months, the Loan Application Defect Index for
Florida is up 4 percent and has historically remained consistently
higher than the national level of risk. This month, Florida ranks
second, behind Michigan, among all states for defect risk. At the market
level, Miami is the third riskiest large metropolitan market in the
country.
“This month, we focus on Florida because it is the second riskiest state
in the nation and continues to struggle with the foreclosure crisis.
While the condo market in Miami may have recovered dramatically, the
stock of foreclosed properties remains high in many Florida markets,”
said Fleming. “High levels of investor-owned condominium purchases in
Miami and foreclosures throughout the state are all being reflected in
the elevated defect risk that we are observing this year.”
Next Release
The next release of the First American Loan Application Defect Index
will be posted on September 23, 2015.
Methodology
The First
American Loan Application Defect Index estimates the level of
defects detected in the information submitted in mortgage loan
applications processed by the First American FraudGuard®
system. The index is based on the frequency with which defect
indicators are identified. The Defect Index moves higher as greater
numbers of defect indicators are identified. An increase in the index
indicates a rising level of loan application defects. The index,
nationally and in all markets, is benchmarked to a value of 100 in
January 2011. Therefore, all index values can be interpreted as the
percentage change in defect frequency relative to the defect frequency
identified nationally in January 2011.
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. © 2015 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 revenues of $4.7 billion in 2014,
the company offers its products and services directly and through its
agents throughout the United States and abroad. More information about
the company can be found at www.firstam.com.
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