Economist credits digital mortgages for drop in loan fraud
While purchase mortgages account for a growing share of overall volume, industrywide investments in more automated and efficient underwriting processes have helped lower instances of fraud.
The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage applications for purchase loans decreased 7.8% year-over-year and 4.6% month-over-month in May, according to First American Financial Corp.'s Loan Application Defect Index. The Defect Index for purchase transactions also dropped 10% in just the past five months.
"There's no better time to have loan application misrepresentation, defect and fraud risk on purchase transactions on the decline than when the market share of purchase transactions is rising," said First American Chief Economist Mark Fleming.
"It's likely that all of the investment in more digitized, automated, and efficient mortgage manufacturing and underwriting technology that's been made in recent years is beginning to pay off. Now the question is, how much lower will it go?" said Fleming.
The Defect Index for mortgage loan applications overall fell 3.6% in May from a year ago and 2.4% from a month ago. For refinance transactions, the Defect Index grew 4.4% from May 2017 and remained unchanged from April.
Over the next few years, the mortgage industry will be dominated by purchase demand as interest rates grow, with refinance transactions expected to make up 28% of total mortgages by the end of the year and just 23% by 2020, according to the Mortgage Bankers Association's latest economic forecast.
By state, South Carolina saw the greatest annual decline in defect frequency, with the Defect Index plummeting 20.4%, while Arkansas saw the largest increase in defect frequency, with the Defect Index for the state rising 12%.