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Loan Application Defect and Fraud Risk Drops as Home Purchases Take Higher Share of Mortgage Market

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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, says Chief Economist Mark Fleming

Santa Clara, CA – June 28, 2018 (BUSINESS WIRE) First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the First American Loan Application Defect Index for May 2018, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and loan type. It is available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, and can provide state- and market-specific comparisons of mortgage loan defect levels.

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May 2018 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications decreased by 2.4 percent compared with the previous month.
  • Compared with May 2017, the Defect Index decreased by 3.6 percent.
  • The Defect Index is down 21.6 percent from the high point of risk in October 2013.
  • The Defect Index for refinance transactions remained the same compared with the previous month, and is 4.4 percent higher than a year ago.
  • The Defect Index for purchase transactions decreased by 4.6 percent compared with the previous month, and is down 7.8 percent compared with a year ago.

Chief Economist Analysis: Despite the fact that market share for purchase transactions is increasing, we’re seeing a decrease in defect and fraud risk

“By now, everyone in the mortgage industry is aware that we are entering a market that will be dominated by purchase demand for the next several years,” said Mark Fleming, chief economist at First American. “According to the latest Mortgage Bankers Association forecast, refinance transactions will make up 28 percent of total mortgages originated in 2018 and is forecasted to drop to 23 percent by 2020. This is, of course, due to the current environment of increasing mortgage rates that follows years of persistently low rates. Until last month, the average rate for a 30-year fixed mortgage had remained below 4.5 percent for 80 consecutive months. And since most homeowners have benefited from the low-rate environment, they now have little financial incentive to refinance, or sell and buy again,” said Fleming. “With mortgage rates continuing to rise, the financial value of keeping their current low-rate mortgages is likely to increase.

“The silver lining? Despite the aforementioned obstacles, consumers will continue to buy. Richard Thaler, Nobel Prize-winning economist, is famous for the analogy that we are more like Homer Simpson than Spock when making economic decisions. Lifestyle decisions will still incentivize people to buy, and sometimes that beautiful kitchen is just too hard to resist! Again, according to the Mortgage Bankers Association forecast, the purchase market is expected to grow even as mortgage rates rise, largely on the strength of first-time homebuyer demand.

“With this fact in mind, the most important news in this month’s Loan Application Defect Index (LADI) is that the Defect Index for purchase transactions decreased by 4.6 percent compared with the previous month, is down 7.8 percent compared with a year ago, and has declined almost 10 percent 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.

“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,” said Fleming. “Now the question is, how much lower will it go?”

May 2018 State Highlights

  • The five states with the greatest year-over-year increase in defect frequency are: Arkansas (+12.0 percent), Wyoming (+7.5 percent), New Mexico (+7.5 percent), California (+5.2 percent) and Virginia (+5.2 percent).
  • The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-20.4 percent), Alabama (-17.2 percent), Vermont (-15.3 percent), Minnesota (-14.9 percent) and Louisiana (-14.0 percent).

May 2018 Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are: Virginia Beach, Va. (+20.0 percent), Los Angeles (+15.9 percent), Orlando, Fla. (+13.4 percent), San Diego (+12.7 percent) and Memphis, Tenn. (+8.0 percent).
  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the largest year-over-year decrease in defect frequency are: Birmingham, Ala. (-22.4 percent), Austin, Texas (-19.3 percent), Pittsburgh (-16.7 percent), Raleigh, N.C. (-16.3 percent) and Minneapolis (-16.3 percent).

Next Release

The next release of the First American Loan Application Defect Index will take place the week of July 29, 2018.

Methodology

The methodology statement for the First American Loan Application Defect Index is available at www.firstam.com.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s chief economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2018 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and wealth management services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

Media Contact:
First American Financial Corporation
Marcus Ginnaty
Corporate Communications
(714) 250-3298

Impossible Goal of Homeownership May Be Possible Despite Student Loan Debt, Says Ameritech Financial

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Rohnert Park, CA – June 13, 2018 (PRNewswire) Student loan debt is a significant factor restraining millennials from the home buying market, according to recent research. Analysis by the Federal Reserve Bank of New York indicates that student loan debt decreased homeownership among those between the ages of 28 and 30 from 2007 to 2015. Further, the study suggests that if student debt levels had remained equal to 2001, more than 360,000 people in that age group would have owned a home in 2015. Hundreds of thousands of Americans have delayed buying a home due to their inability to move forward in the face of the ceaseless headwind of student loan debt. Ameritech Financial is a document preparation company that assists federal student loan borrowers with applications for income-driven repayment plans offered by the Department of Education that can help borrowers prepare for the home buying process.

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“It can feel like student loans are holding you back from financial freedom, up to and including homeownership,” said Tom Knickerbocker, executive vice president of Ameritech Financial. “We recommend that borrowers examine their current financial position and their goals and look for strategies such as eligibility for help through a federal repayment program.”

Though student debt is considered a major factor, other circumstances influence reduced homeownership for young Americans such as stricter mortgage underwriting standards and migration toward cities where home prices have soared as wages have stagnated. Despite this, college is still a relatively good foundation on which to build homeownership. According to the New York Fed analysis, almost half of those who attended college owned a home by the age of 33, compared to about a quarter of people who didn’t attend college.

Income-driven repayment plans (IDRs) can potentially lower loan payments, making it possible to be approved for a mortgage based on some factors crucial for homeownership, which include saving for a down payment, improving current credit score and reducing household debt payments relative to household income.

Ameritech Financial can assist borrowers in applying for federal loan assistance programs such as IDRs that can potentially lower their payments and get them on track for student loan forgiveness and make possible the seemingly impossible goal of homeownership. “Ameritech Financial is there to help individuals apply for programs with federal student loans. We offer our services to those seeking help in applying for income-driven repayment programs to help make sure their applications are completed properly,” said Knickerbocker.

About Ameritech Financial

Ameritech Financial is a private company located in Rohnert Park, California. Ameritech Financial has already helped thousands of consumers with financial analysis and student loan document preparation to apply for federal student loan repayment programs offered through the Department of Education.

Each Ameritech Financial telephone representative has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).

Ameritech Financial prides itself on its exceptional customer service.

Contact

To learn more about Ameritech Financial, please contact:

Ameritech Financial
5789 State Farm Drive #265
Rohnert Park, CA 94928
(800) 792-8621
media@ameritechfinancial.com

Fannie Mae Announces Seventh Sale of Reperforming Loans

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Washington, D.C. – June 13, 2018 (PRNewswire) Fannie Mae (OTC Bulletin Board: FNMA) today began marketing its seventh sale of reperforming loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio.

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The sale consists of approximately 27,000 loans, having an unpaid principal balance of approximately $6.17 billion, and is available for purchase by qualified bidders. Interested bidders can register here, at www.fanniemae.com.

This sale of reperforming loans is being marketed in collaboration with Citigroup Global Markets, Inc. Bids are due on July 10, 2018.

Reperforming loans are mortgages that were previously delinquent, but are performing again because payments on the mortgages have become current with or without the use of a loan modification. The terms of Fannie Mae’s reperforming loan sale require the buyer to offer loss mitigation options designed to be sustainable to any borrower who may re-default within five years following the closing of the reperforming loan sale. In addition, buyers must report on loss mitigation outcomes. Any reporting requirements cease once a loan has been current for twelve consecutive months after the closing of the reperforming loan sale.

Interested bidders can register for ongoing announcements, training, and other information at www.fanniemae.com. Fannie Mae will also post information about specific pools available for purchase on that page.

Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.