The Loan Application Defect Index for purchase transactions continued its downward trend, declining 1.3 percent in July compared with the month before, the seventh consecutive month defect risk in purchase transactions have fallen. Yet, is declining loan application misrepresentation, defect and fraud risk isolated to a few markets or is the trend more geographically broad based?

“The question is not where is defect risk declining, but when will it stop.”

The Defect Index also measures loan application misrepresentation, defect and fraud risk over time in 50 of the largest markets in the U.S. When analyzing local market level data, comparing data at three-month intervals tends to be more helpful in identifying trends than data from more volatile month-to-month comparisons. Nationally, the Defect Index decline of 7.3 percent in July relative to three-month moving average was driven by declining risk in all but two markets – New Orleans and Louisville, Ky. In every other market, loan application, misrepresentation, defect and fraud risk declined. In some markets the decline was substantial. In 39 markets, defect risk declined more than 5 percent, while the three-month decline in risk exceeded 10 percent in 11 markets.   

The mortgage finance industry’s significant investment in financial technology to deliver a convenient, digital, highly automated and all-around better home-buying experience has also enhanced the mortgage manufacturing and underwriting process, producing declining levels of defect risk. The benefits of this investment are not geographically specific, so it’s no surprise that we see the impact of this investment in the vast majority of markets. The question is not where is defect risk declining, but when will it stop?

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 September 24, 2018.