Loan application defect risk continued to decline in May, according to a report from First American Financial Corp.
First American's Loan Application Defect Index fell 2.7% from April and 9.9% from May 2015, the Santa Ana, Calif.-based company reported Thursday. With the decline, the index reached a historically measured low point, according to First American chief economist Mark Fleming.
"Loan production expenses have been increasing, which reflects the industry's investment in technology and improved standards, as well as greater demand for compliant loan production processes," Fleming said in a news release.
"While the costs of compliance are higher and reducing the profitability of mortgage lending, there is long-term financial benefit to increased loan quality. Fewer defects and less misrepresentation will reduce repurchase risk and expenses for underwriters in the future."
The defect index for refinance transactions dropped 3.1% month-over-month and 10% from a year ago. Similarly, the defect index for purchase transactions declined 2.4% from the preceding month and is down 11.4% year-over-year.
The state with the highest increase from 2015 in defect frequency was North Dakota with a 19.3% uptick, followed by Maine and Missouri. Michigan's 27.5% year-over-year drop in defect frequency led the country.
Similarly, Detroit had a 33% decrease in defect frequency from last year, showing the strongest improvement among the 50 largest metropolitan areas nationwide. St. Louis had the biggest increase in defect frequency at 15.9%.
