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Mortgage Loan Defects at an All-Time Low

mortgage-appMortgage loan defects, which can lead to fraudulence and misrepresentation in loan applications, are disappearing in the industry at a rapid pace and are expected to become less prevalent in the future as the housing market normalizes.

First American Financial Corp., released their Loan Application Defect Index Wednesday declined by 2.6 percent in December 2015 compared to November 2015 to 76.

The index, which estimates the frequency of defects, fraudulence, and misrepresentation in the information submitted in mortgage loan applications, is down 8.4 percent year-over-year in December and down 25.5 percent from the all-time high point of risk recorded in October 2013.

"As with many housing market statistics today, the misrepresentation and defect risk trend is consistently for the better. Risk at the high end continues to improve, causing our dispersion index to decline by another point on a month-over-month basis,” said Mark Fleming, Chief Economist at First American.

According to First American, defect and misrepresentation risk has now fallen for the fifth consecutive month, equaling the lowest point in the index. Over the last three months, the index has decreased 6.2 percent.

First American's Top Five States With the Highest Month-Over-Month INCREASE or SMALLEST Decrease in Defect Frequency are:

  1. South Carolina (+4.8 percent)
  2. Maine (+4.2 percent))
  3. Vermont (+2.8 percent)
  4.  Rhode Island (+1.4 percent)
  5. Kentucky (+1.4 percent)

First American's Top Five States with the Highest Month-Over-Month DECREASE in Defect Frequency are:

  1. Alaska (-10.8 percent)
  2. Mississippi (-5.6 percent)
  3. New Mexico (-5.3 percent)
  4. Montana (-4.3 percent)
  5. Indiana (-4.1 percent)

“High-risk markets like Miami, Florida; McAllen, Texas; and Cape Coral, Florida, are improving quickly and reducing the risk at the high end of the dispersion distribution," Fleming stated. "This year, we expect to see fraud and misrepresentation risk continue to decline.”

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