We’ve posted the August First American Loan Application Defect Index, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index remained unchanged in August as compared with July and decreased by 14.6 percent as compared with August 2015. The Defect Index is down 31.4 percent from the high point of risk in October 2013.

“While the share of FHA/VA/USDA loans is up, the loan application defect risk on them is down. This has had a positive impact on overall defect risk in the market and partly explains the large decline in defect risk we have seen in the past year.”

“While FHA loans are generally considered to have higher credit risk than conventional loans, according to the Defect Index, conventional loan risk is down 14.6 percent over a year ago, compared with a year-over-year decline of 17.7 percent for transactions involving FHA/VA/USDA loans. In addition, transactions involving FHA/VA/USDA loans are currently 14.5 percent less risky than transactions involving conventional loans. In fact, loan application and defect risk on transactions involving FHA/VA/USDA loans has declined more in recent years than the defect risk for conventional mortgages, said Mark Fleming, chief economist at First American.

“Our collaboration with the American Enterprise Institute on the National Mortgage Market Index allows us to track mortgage production by investor transaction type, and with this new visibility, we have observed an increase in the share of FHA loans in the market,” said Fleming. “While the share of FHA/VA/USDA loans is up, the loan application defect risk on them is down. This has had a positive impact on overall defect risk in the market and partly explains the large decline in defect risk we have seen in the past year.”

For this information, the top five states and markets where defect risk is increasing or decreasing, and more, please visit the Loan Application Defect Index.