Fintech investments keeping mortgage defects low: First American
Future reductions in loan application defect risk are likely because of mortgage lenders' fintech investments, even as the purchase origination share grows, said First American Financial.
Its Loan Application Defect Risk Index for July was 76, down from 77 in June and 84 for July 2017, which represented a two-year high point. This is a national trend and not one that is isolated in a few well-performing markets, First American Chief Economist Mark Fleming said in a press release.
As the mortgage industry shifted to doing more purchase originations, it was expected that the defect risk would increase, as these applications are more likely to see fraudulent statements about income, assets and employment, Fleming previously said.
But the purchase application defect index continued its slide from the start of the year, to 79 for July. This was down from 80 in June, 92 in January and 91 in July 2017.
"The mortgage finance industry's significant investment in financial technology to deliver a convenient, digital, highly automated and all-around better home-buying experience has also enhanced the mortgage manufacturing and underwriting process, producing declining levels of defect risk," said Fleming. "The benefits of this investment are not geographically specific, so it's no surprise that we see the impact of this investment in the vast majority of markets. The question is not where is defect risk declining, but when will it stop?"
Only two states had a year-over-year increase in defect frequency: Maine and Hawaii.
The refinance index was unchanged from June at 69 and was down from 71 in July 2017.
For conventional loans, the defect index was 84, compared with 85 in June and 94 in July 2017, while for government guaranteed loans it was unchanged from June at 82 but down from 88 in July 2017.