California's mortgage defect risk elevated following wildfires
There was an 8% year-over-year increase in mortgage loan application defect risk in California during October and that should rise further because of the wildfires that devastated the state, First American said.
In California, the index rose to 80 from 79 in September and 74 in October 2017. The year-over-year increase is the third largest among the 50 states on a percentage basis.
Past trends have shown that natural disasters and increased loan application defect risk go hand-in-hand, said First American Chief Economist Mark Fleming in a press release.
"In the aftermath of the December 2017 Thomas Fire in Ventura and Santa Barbara counties, mortgage defect, fraud and misrepresentation risk increased 10% in one month in the Oxnard-Thousand Oaks-Ventura metropolitan area," said Fleming. "Fraud and misrepresentation risk remained elevated for five months after the wildfire, before trending down again. Defect, fraud and misrepresentation risk in the Oxnard metropolitan area, which had been declining prior to the Thomas Fire, has yet to return to pre-wildfire levels."
Rebuilding homes damaged in the two fires could cost as much as $18 billion, a CoreLogic analysis said.
Application defect risk in California increased each month from November until April, before trending down until July. In the last two months, defect risk was back on the rise.
While in the short term application defect risk in the affected markets is likely to remain elevated, in areas affected by last year's hurricanes, the situation has improved.
In Florida, where the defect risk rose nine points last year between August and November because of Hurricane Irma, October's 86 was the lowest index value since February 2017.
In Texas, where Hurricane Harvey devastated the Houston area, the index of 79 tied for the lowest since January 2017.
In the states affected by Hurricane Florence earlier this year, the defect index for North Carolina rose three points from September to 84, while in South Carolina, it also rose three points to 82.
The other states with the largest year-over-year percentage increases in defect risk were Alaska, up 17%; Hawaii, up 10%; Wyoming, up 7%; and Maine, up 7%.
San Diego led all metro areas with a 16% increase, followed by Los Angeles, up 13%.