Defects and misrepresentations on mortgage applications continued to rise in May, reaching levels last seen in 2015.

The First American Loan Defect Index was 83, up 2.5% from April and 13.7% over May 2016. Defects and misrepresentations are an indicator of fraud connected with the mortgage application.

"While risk is growing in both purchase and refinance transactions, it is important to recognize that loan application defect, fraud and misrepresentation risk remains below the peak reached in 2013." said First American Chief Economist Mark Fleming in a press release. "The purchase-pivot in the housing market continues to add fuel to the fire of the overall level of application, defect and fraud risk."

The purchase index was 90, up 1.1% from April and 11.1% from May 2016, while the refi index reached 68, up 3% over the prior month and 9.7% from one year prior.

There were five cities in the south that Fleming cited in particular, where the defect risk increased by more than 10% year-over-year, led by Augusta, Ga., up 35.2.%. The others were: Knoxville, Tenn., up 22.5%; Birmingham, Ala., up 18.1%; Charleston, S.C., up 12.4%; and McAllen, Texas, up 10.4%. Of the five, McAllen had the highest defect index value, at 106.

"Southern markets are experiencing some of the strongest growth in housing demand, as people seek the lower cost of living compared to northeastern and western markets. Where there's smoking demand, the flames of defect risk typically follow," Fleming said.

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