Detroit's Comeback Mirrored by Drop in Loan App Defects

Detroit's renaissance has had spillover effects, including a sharp reduction in the frequency of fraud, misrepresentation and other defects in mortgage applications, First American Financial Corp. said Thursday.

Among the 50 largest cities in the country, the Motor City logged the highest decrease in defect frequency for the month of April: 25.5% less than a year earlier. Similarly, Michigan posted the biggest drop in defect frequency of any state, with a 20.4% decline.

"Location matters. Local economic conditions have an important influence on misrepresentation and fraud risk," Mark Fleming, First American's chief economist, said in a news release Thursday.

"As Detroit puts its tarnished industrial past behind it and develops jobs associated with today's economy, our misrepresentation and risk index will reflect those changes positively," he added.

Overall, First American's Loan Application Defect Index, which measures the rate of occurrence of such deficiencies nationwide, dropped 1.3% from March and 5.1% from April 2015, returning to an all-time low after an uptick the month before. While defect risk seems to still be on a downward trend thanks to improved compliance technology and more investment in the loan manufacturing process, matters could change in the future, Fleming cautioned.

"We should be wary that future increases in the overall index may not represent a true reversal of this benefit, but rather a reflection of the decline in volume of lower-risk refinance transactions relative to higher-risk purchase transactions," he said.

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