Last year was more than just a sellers’ market, according to the First American Loan Application Defect Index for December 2020 [1]. In fact, the year broke a few records, which made it the best time to sell a home. It also has resulted in more motivation to misrepresent information on a loan application, experts say.
“The housing market exceeded all expectations in 2020 and set several new historical marks – record low mortgage rates, record low inventory of homes for sale, and the highest existing-home sales activity since 2006,” said Odeta Kushi, First American Deputy Chief Economist. “In other words – 2020 was a super-sellers’ market.”
Multi-offer bids became the norm as potential buyers rushed in order to take advantage of interest rates that dropped below 3%. But that led to some purchase fraud.
In fact, purchase loan fraud risk ended the year at 9% higher than just 12 months before. Refinance fraud risk also continued its own upward trend, however remains 8.6% lower than it was a year ago.
The Loan Application Defect Index (LADI) may have increased 1.6% between November and December, but ended up 6% lower than it had the previous year.
“Borrowers have more motivation to misrepresent information on a loan application in order to qualify for the bigger mortgage necessary to win the bidding war for a home, resulting in rising purchase fraud risk,” Kushi said. “With the super-sellers’ market expected to persist in 2021, it’s likely that purchase fraud risk will continue to rise.”
“The historically low mortgage rates are also causing a refinance frenzy, which could prompt existing homeowners to misrepresent information on a refi application.”
Mortgage rates are predicted to rise this year, but they’ll still remain very low compared to what has been the norm for the last decade. But even a modest increase should reduce the mortgage refinance volume and dissuade refinance fraud risk.