First American

How Millennial Home Buying Expectations Unintentionally Reduced Loan Application Defect Risk

As the mortgage market has continued its transition away from refinances to a predominantly purchase-oriented loan market, the Loan Application Defect Index for purchase transactions has continued to decline, dropping 3.6 percent in the last month and 12.1 percent in the last year. This officially marks a six-month long decline in defect, fraud and misrepresentation and risk on purchase transactions, which have traditionally been considered higher risk.


“The investment in technology to better serve millennial first-time home buyers also helped make the manufacture and underwriting of mortgage loans less risky.  Sometimes, unintended consequences aren’t so bad.”

Not only is the national trend positive, but loan application defect, fraud and misrepresentation risk is declining in practically every market in the nation. Only five major metropolitan markets experienced an increase in overall defect, fraud and misrepresentation risk compared with a year ago. Many markets experienced significant declines of 10 percent or more.   

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Is millennial demand for homeownership behind this trend? In addition to their desire to be homeowners, millennials also expect a convenient, digital, highly automated and all-around better home-buying experience. The mortgage finance industry has invested heavily in technology to meet this demand to compete for millennials’ mortgage loan business. The technology investment that has occurred in the mortgage industry in recent years to better serve millennial first-time home buyers also helped make the manufacture and underwriting of mortgage loans less risky with fewer defects and misrepresentation on loan applications. Sometimes, unintended consequences aren’t so bad.

For Mark’s full analysis on loan defect risk, the top five states and markets with the greatest increases and decreases in defect risk, and more, please visit the Loan Application Defect Index.

The Defect Index is updated monthly with new data. Look for the next edition of the Defect Index the week of August 27, 2018.