Low interest rates and better loan processing have produced the lowest national level of loan defect and misrepresentation in the recent past, according to First American Financial Corp.

  • The First American Loan Application Defect Index showed defects, fraudulence and misrepresentation on loan applications across the U.S. declined 16.7 percent year-over-year.
  • Affordable housing and income growth in the South has attracted more buyers, which has elevated the risk factors due to increased demand.
  • San Francisco's Defect Index decreased 18.99 percent year-over-year, to 64. There has been steady decline over the summer, with a 1.54 percent decrease month-over-month in July.

Low interest rates and better loan processing have produced the lowest national level of loan defect and misrepresentation in the recent past, according to First American Financial Corp.

The financial firm’s Loan Application Defect Index shows defect and fraudulent information submitted on loan applications dropped 2.8 percent from June to July, and 16.7 percent from July 2015.

The index detects and tracks the frequency of fraudulent, defect and misrepresentation in mortgage loans. Aside from the brief period between October 2012 and January 2013, mortgage rates are at the lowest point since Freddie Mac has been tracking since 1971, the index shows.

First American reports that the defect index is improving as refinance activity continues strengthening in the market.

Refinance transactions have also decreased over the month and year. Currently, refinance transactions in the index are 1.7 percent lower than the previous month and 18.1 percent lower than July 2015, First American says.

Defect Index decreases and increases by market

The overall Defect Index for July received a score of 70. The index is based on a benchmark value of 100, which was determined in January 2011. Change in the Defect Index is based on the numbers of defect indicators identified in loan applications.

The San Francisco metro’s Defect Index decreased 18.99 percent year-over-year, to 64. There has been steady decline over the summer, with a 1.54 percent decrease month-over-month in July. There was a 5.88 percent decrease on the three-month cycle.

The Los Angeles metro’ year-over-year index drop is just shy of San Francisco’s, at 18.82 percent. The Defect Index for Los Angeles is 69.

The Defect Index for Greater Houston is at 89 and is unchanged from the previous month. The yearly decrease is 11.88 percent, with only 2.2 percent change over the past three months.

The index in the Miami metro is down 24.32 percent since July 2015, to 84. There was a 1.18 percent drop from the month prior, and a 7.69 percent decrease over the past three months.

There was no change over the month for New York City. NYC’s Defect Index of 71 puts it right on track with the national level. Since July 2015, that figure has decreased 14.46 percent.

The index for the Chicagoland metro is at 70, down 18.6 percent year-over-year and 2.78 percent month-over-month.

Defect loan application indicators in the Baltimore metro were unchanged from the previous month, leaving the Index rating at 69. This is a decrease of 14.1 percent over the year, and 4.29 percent over the past three months.

The Defect Index in the Washington D.C. metro is on track with the national rating of 70. There was slight change over the month, with a 1.41 percent decline, and a 7.89 percent drop percent year-over-year.

Email Britt Chester

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