—Cotton states in the South are showing the highest levels of risk, compared to the northern rust-belt, where application and defect risk is currently the lowest, says Chief Economist
October Loan Application Defect Index
- The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications, decreased 1.4 percent in October as compared with September.
- Compared to
October 2015, the Defect Index decreased by 13.9 percent.
- The Defect Index is down 33.3 percent from the high point of risk in
- The Defect Index for refinance transactions decreased 1.7 percent month-over-month, and is 15.9 percent lower than a year ago.
- The Defect Index for purchase transactions is unchanged compared to last month, and is down 5.9 percent compared to a year ago.
Chief Economist Analysis: Post-Election Rate Increase Pushes Market Toward Higher Risk Purchase Loans
“The post-election sudden increase in mortgage rates has accelerated the shift away from a refinance-driven market toward a purchase-dominated market,” said
A North-South Divide
“Defect, fraud and misrepresentation risk can vary substantially by location. In fact, the most recent data is showing a growing division between the North and South,” said Fleming. “Cotton states in the South are showing the highest levels of risk, compared to the northern rust-belt, where application and defect risk is currently the lowest.”
Additional Quotes from Chief Economist
- “Defect risk is concentrating in the South, particularly in
Arkansasand Louisiana, as well as in large markets in Texasand South Carolina.”
Texas; Houston; Columbia, S.C.; Birmingham, Ala.and Charleston S.C.currently have the highest loan application defect and misrepresentation risk in the nation.”
- “New Orleans;
Baton Rouge, La.and Little Rock, Ark.are also ranked highly for defect risk among the largest 100 metropolitan areas of the country.”
- “Comparatively, markets in the northeast states of
New York, Pennsylvania, and Ohiohave the least loan application defect and misrepresentation risk.”
- The five states with the highest year-over-year increase in defect frequency are:
Maine(+30.6 percent), South Dakota(+19.6 percent), Vermont(+15.1 percent), North Dakota(+11.1 percent), and Wyoming(+11.1 percent).
- The five states with the highest year-over-year decrease in defect frequency are:
Michigan(-21.7 percent), Florida(-19.8 percent), California(-19.5 percent), Oklahoma(-17.0 percent), and Rhode Island(-16.7 percent).
- Among the largest 50 Core Based Statistical Areas (CBSAs), the only one market with year-over-year increase in defect frequency is:
St. Louis(+4.2 percent).
- Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in defect frequency are:
Louisville/ Jefferson, Ky.(-28.9 percent); Detroit(-27.5 percent); Sacramento, Calif.(-25.3 percent); Orlando, Fla.(-24.7 percent); and Oklahoma City(-24.5 percent).
The next release of the First American Loan Application Defect Index will be posted the week of
The methodology statement for the First American Loan Application Defect Index is available at http://www.firstam.com/economics/defect-index.
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. © 2016 by First American. Information from this page may be used with proper attribution.
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