Loan application fraud risk rises again

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Defects and misrepresentations on mortgage applications rose for the fifth consecutive month in April, with increases for both purchase and refinance loans.

The First American Loan Application Defect Index for April was 81, up 2.5% from March and 8% from April 2016. Defects and misrepresentations are an indicator that there might be fraud connected with the application.

Refinance application defects were up 4.8% compared with March, while purchase application defects were up 2.3%.

Purchase applications are considered at a higher risk for defects and possible fraud because people are more willing to make misstatements in order to acquire a home.

That is why First American Chief Economist Mark Fleming was concerned about the continued increase in refi application defects.

"The pace of defect risk growth is as strong as we have seen since the index began in 2011, adding to the concern over the five-month trend," said Fleming. "While we have recently noted that part of the rise in overall risk is due to the market's shift toward riskier purchase transactions, the fact that risk in refinance transactions is also on the rise underscores the need for caution."

This is the fourth sustained increase in the overall application defect index. The longest started in October 2012; this index went from 90 to its all-time high of 102 a year later.

The current rise started after the overall index was at its low of 68 in November 2016. During the same time frame, the refi index has gone to 66 from 56, while the purchase index went to 89 from 80.

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