Mortgage fraud risk reaches turning point, according to First American Loan Application Default Index



SANTA ANA, Calif .– (COMMERCIAL THREAD) –America’s leading financial company (NYSE: FAF), one of the world’s leading providers of title insurance, settlement services and risk management solutions for real estate transactions, today released the First American Loan Application Defect Index for October 2019, which estimates the frequency of defaults , fraud and misrepresentation in information submitted in mortgage loan applications. The Default Index reflects estimated mortgage default rates over time, by geographic area and by type of loan. It is available as an interactive tool that can be adapted to show trends by category, including amortization type, lien position, loan purpose, ownership and transaction types, and can provide state and market specific comparisons of mortgage default levels.

October 2019 Loan Default Index

  • The frequency of defaults, fraud and misrepresentation in information submitted in mortgage loan applications decreased 1.4% from the previous month.

  • Compared with October 2018, the default index decreased by 13.9%.

  • The default index is down 33.3% from the high risk point of October 2013.

  • The default index for refinancing operations decreased by 3.2% compared to the previous month and by 14.1% compared to the previous year.

  • The defaults index for purchase transactions remained the same as the previous month, and is down 8.5% from a year ago.

Chief Economist’s Analysis: Global Default and Fraud Risk Continues to Slide

“According to our analysis, if mortgage rates continue to fall, the pressure on the risk of fraud may ease. This has been happening for most of 2019, as the 30-year fixed mortgage rate has been declining since December 2018, and the overall risk of fraud has paralleled, ”said Mark Fleming, chief economist at First American. “The risk of fraud started to decrease in March 2019 and hit an all-time low in October. The loan defaults index for refinancing operations followed a similar trend, decreasing by 14.1% between March and October 2019.

However, the default risk for buy transactions broke its streak of six-month declines in October. Although still 8.5% lower than a year ago, the risk of default was stable from the previous month, ”Fleming said.“ October was also the first month since November 2018 that the 30-year fixed mortgage rate rose month-over-month. Examining any potential link between trends in default risk and mortgage rates can shed light on what to expect for default risk in the near future.

The relationship between the purchasing power of a home and the risk of fraud

“The purchasing power of a home is the amount of home you can buy based on changes in household income and interest rates,” Fleming said.When household income increases, the purchasing power of a home increases. Lower mortgage rates are also boosting the purchasing power of homes.

“Since December 2018, the purchasing power of a home has increased due to the constant increase in household income and the fall in mortgage rates. In fact, a home’s purchasing power hit $ 421,120 in September 2019, the highest point in our analysis dating back to 1990, ”Fleming said. “Yet in October, when mortgage rates rose month-over-month for the first time since November 2018, the purchasing power of homes also fell, falling 0.8% from the previous month. . How could the mortgage rate-induced drop in home purchasing power play a role in ending the six-month drop in default risk for purchase transactions?

“Potential home buyers may feel more confident and less inclined to commit fraud when they are in a better financial position to buy a home,” Fleming said. “In a market where supply is limited, a decline in the purchasing power of housing makes it more difficult to compete among potential home buyers, so that they may feel more pressure to distort information about a demand for housing. ready.

“It’s important to remember that a month doesn’t make a trend. Home purchasing power could decline further, but is expected to remain high by any recent historical standard. In addition, construction of new homes is accelerating, ”said Fleming. “More new homes can ease supply pressure and reduce competition between buyers and the pressure to distort information about a loan application. As market conditions for sellers loosen their grip on the broader housing market, the risk of default on buy transactions is still likely to decline.

October 2019 State Highlights

  • The two states with one year over year increase in the frequency of faults are: South Dakota (+ 4.8%) and New York (+ 2.4%).

  • The five states with one year over year decrease in terms of frequency of faults are: Alaska (-34.4%), West Virginia (-22.5%), Virginia (-21.7%), Delaware (-20.3%) and North Carolina (-20.2%).

October 2019 Local Market Highlights

  • Among the 50 largest basic statistical domains (CBSA), only one market recorded a increase in frequency of faults: Hartford, Connecticut (+3.2 percent).

  • Among the 50 largest basic statistical domains (CBSA), the five markets with a decrease in frequency of faults are: Virginia Beach, Virginia (-25.8%), San Diego (-25.3%), San Antonio (-24.3%), Richmond, Virginia (-23.7%) and Raleigh , North Carolina (-23.2%).

Next version

The next release of the First American Loan Application Defect Index will take place the week of December 30, 2019.


The methodological statement of the First American Loan Application Defect Index is available at


The opinions, estimates, forecasts and other views contained on this page are those of the Chief Economist of First American, do not necessarily represent the views of First American or its management, should not be construed as indicating the outlook business or expected results of First American, and are subject to change without notice. While the First American Economics team attempts to provide reliable and useful information, they do not guarantee that the information is accurate, up to date, or fit for a particular purpose. © 2019 by First American. The information on this page can be used with appropriate attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions with a heritage dating back to 1889. First American also provides title factory management services; title and other records and images of real estate; assessment products and services; home warranty products; property and casualty insurance; banking, trust and wealth management services; and other related products and services. With total sales of $ 5.7 billion in 2018, the company offers its products and services directly and through its agents in the United States and abroad. In 2019, First American was appointed to Fortune 100 best companies to work for® list for the fourth consecutive year. You can find more information about the company at


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