Higher Spending on Compliance Results in Fewer Errors on Apps

The number of misrepresentations in mortgage applications continued to decline in February, benefiting from lenders' increased spending on compliance, said First American Financial Corp. Errors and misrepresentations are a red flag for the possibility of mortgage fraud.

There was a 1.3% decrease for February as compared to January in the title insurer's Loan Application Defect Index. On a year-over-year basis, the index decreased by 5.1%, the Santa Ana, Calif.-based company said in a news release Thursday.

The index has fallen 3.8% the past three months and currently is at its lowest point since First American started to calculate the level of defect risk in 2011. The index has not had an increase in seven consecutive months and is down 26.5% from its high point of risk in October 2013.

"According to the MBA, loan production expenses have been increasing, which reflects the industry's investment in technology and improved standards, as well as greater demand for compliant loan production processes. However, one benefit of these investments is declining loan application defect and misrepresentation risk," said Mark Fleming, chief economist at First American.

States with the highest year-to-year decrease in defect frequency in February include Alabama (17.2%), Michigan (16.2%), West Virginia (15.6%), Minnesota (14.8%) and Wyoming (14.7%).

The cities with the highest year-over-year decrease during this time are Birmingham, Ala. (20.2%); Detroit (19.1%); Minneapolis (13.3%); Jacksonville Fla. (12.6%); and Raleigh, N.C. (12.2%).

States with the highest year-over-year increase in the defect frequency in February are Utah (9.7%), Kentucky (8.8%), South Carolina (8.6%), the District of Columbia (8%) and Texas (5%).

The cities with the highest year-to-year decreases are Louisville, Ky. (19.1 %); Salt Lake City (16.2%); Houston (13.6%); Memphis, Tenn. (9.1%); and Austin, Texas (8.2%).