The number of ‘defects’ found in mortgage applications increased 4.9% in July compared with June, according to First American Financial Corp.'s Loan Application Defect Index.
However, the number of defects found in applications decreased by 5.6% compared with July 2014 and decreased 17.5% compared with the high point of risk in September 2013, according to the report.
The rate of defects in applications for refinances increased 8.7% compared with June and increased 7.1% over the previous three months.
Still, the number of defects in applications for refinances was 6.3% lower compared with July 2014.
The defect rate for applications for adjustable-rate mortgages, which consistently exhibit higher levels of application defects, represented an 8.4% increase compared with June and increased 9.6% over the previous three months.
The increase in the defect rate in July follows a decrease in June. The total number of defects in all mortgage applications has been steadily decreasing since 2013, says First American Financial Corp.
States that saw the biggest month-over-month increases in application defects in July included Oklahoma (14%), Hawaii (13.1%), Louisiana (10%), Texas (10%) and Colorado (9.3%).
States that saw the biggest decreases in application defects included Iowa (-11.4%), Massachusetts (-5.4%), Alaska (-5.3%), the District of Columbia (-4.7%) and West Virginia (-3.1%).
Cities that saw the biggest increases in application defects in the three months ended in July included Oklahoma City (28.2%); Houston (25.6%); McAllen, Texas (25.0%); Austin, Texas (21.3%); and Louisville, Ky. (19.7%).
Cities that saw the biggest decreases in defects, quarter over quarter, included Rochester, N.Y. (-28.6%); Wichita, Kan. (-12.0%); Richmond, Va. (-9.5%); Dayton, Ohio (-8.1%); and Springfield, Mass. (-6.9%).
‘After seeing improvement in the national mortgage loan defect trend last month, the index has returned to the trend of increasing risk that we have observed since the beginning of 2015,’ says Mark Fleming, chief economist at First American, in a statement. ‘What remains consistent from last month is the concentration of defect risk in the same handful of key markets in the south, particularly in Florida and Texas, as well as in the Northeast and upper Midwest. This month, major metropolitan areas in Florida and Texas continue to produce defect frequency levels well above the current national level.’
This month's report includes a special focus on loan defect rates in the state of Florida.
‘This month, we focus on Florida because it is the second riskiest state in the nation and continues to struggle with the foreclosure crisis,’ Fleming says. ‘While the condo market in Miami may have recovered dramatically, the stock of foreclosed properties remains high in many Florida markets. High levels of investor-owned condominium purchases in Miami and foreclosures throughout the state are all being reflected in the elevated defect risk that we are observing this year.’
First American's Loan Application Defect Index reflects estimated defect rates over time, by geography and by loan type. It's available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, and property and transaction types, as well as state and market-level comparisons of levels of mortgage loan defects.