The level of risk on overall applications for residential loans moved higher for the third consecutive month and could rise even further as adjustable-rate share rises.
An estimate of the frequency of defects, fraud and misrepresentation of information submitted on mortgage applications, the Loan Application Index, was 76 in February.
The index worsened compared to the prior month, when it was previously reported at
73. The index has risen each month since November 2016, when it was 68.
First American Financial Corp., which reported the latest numbers Friday, said the index
reflects estimated mortgage loan defect rates over time.
The index also worsened from a year prior, increasing by more than a percent.
But despite the month-over-month and year-over-year deterioration, the level of risk remains 26 percent lower than the high point in October 2013.
First American Chief Economist Mark Fleming explained in the report that the drop in refinance share as rates have risen has more risky purchase finance transactions driving up the index. He warned that as increasing rates drive more borrower to adjustable-rate mortgages, the index could deteriorate further.
In Louisiana, last month’s Loan Application Defect Index was 92 — the highest of any state. After that was Arkansas’ 91, then Vermont’s 89, Florida’s 87 and Mississippi’s 87.
Wyoming saw a 43 percent year-over-year increase in the index, more than any other state. Risk was down 10 percent in Michigan, the biggest drop of any state.
On just U.S. refinance transactions, application risk increased 3 percent from January 2017. But refinance risk was down 6 percent from February 2016.
A 2 percent increase from the previous month and a year previous was recorded for the purchase financing applications.
