MReport July 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 33 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION "Nationally, defect risk continued to surge in 2019 and in February reached its highest point since 2013." —Mark Fleming, Chief Economist, First American Condo Rush Here's why lenders should consider the increasing importance of condominium mortgage in their business strategy. C ondominium sales may play a more significant role in the mortgage origi- nation market in the next few years, according to CoreLogic. According to Jacqueline Doty, VP of Industry Solutions, CoreLogic, condominium originations have held steady at around about 8% of total mortgage originations for the past few years, and hotspots with a particularly high share of condo sales include Washington, D.C. (37%) and Hawaii (42%). CoreLogic also notes that the condominium market has become tighter than ever, with the average condo staying on the market for only 60 days. The influx of mil- lennial homebuyers is also set to increase the demand for condo- miniums. Doty notes that, moving for- ward, lenders need to keep a few facts in mind. "Lenders looking to take advantage of a potential condo rush may find that they're being unnecessarily strict when approv- ing condo loans," Doty said. "With the delinquency rate of condo loans sitting about 2% lower than that of single-family homes, there could be room to loosen condo lending guidelines." Additionally, she points out that Fannie Mae and Freddie Mac played a part in this "loosening." In order to make it possible for more condo loans to be originated and sold to the GSEs going forward, Fannie and Freddie have increased commercial space allowances from 25% to 35%, relaxed the requirements for small 2-4 unit condo projects, streamlined underwriting for cer- tain low loan-to-value and investor loans, and allowed certain types of minor litigation to be present in the project when the litigation won't have a significant impact to the financial stability of the project. Examining Fraud and Defect Risks Two reports shed light on the areas most impacted by loan application defect risks and the trends influencing it. C oreLogic's National Mortgage Application Fraud Risk Index (Index) reported a Q1 2019 increase of 6% over Q1 2018, settling in at 152. The Index is calculated from the aggregation of individual loan appli- cation fraud risk scores during the previous quarter. Score compilations are calculated for the 100 highest- populated Core-Based Statistical Areas (CBSA) in the U.S., and the 15 CBSAs with the highest fraud risk for the most recent quarter are shown in rank order. The CoreLogic report notes that the share of refinance trans- actions increased to 32% in Q1, an increase from 28% from the prior three quarters, due to a reduction in interest rates. Eight of the top 15 highest-risk CBSAs are in Florida, which continues trends seen during 2018, when the Sunshine State was one of three with the highest levels of mortgage-application fraud risk. The market of Deltona-Daytona Beach-Ormond Beach, however, was the only market that saw an increase in its fraud risk from 2018, increasing by 17%. Florida markets included on the list that saw decreases were: Miami-Fort Lauderdale-West Palm Beach (-9%); Tampa-St. Petersburg- Clearwater (-12%); Lakeland-Winter Haven,(-23%); Cape Coral-Fort Myers (-29%); North Port-Sarasota- Bradenton (-10%); Jacksonville (-9%); and Orlando-Kissimmee-Sanford (-28%). Miami-Fort Lauderdale-West Palm Beach was ranked as the No. 1 CBSA for Fraud Risk in Q1 of 2019 with an Index of 401. The market's Index is 143 points higher than the second-ranked market, Deltona-Daytona Beach-Ormond Beach (261). According to First American's Loan Application Defect Index, the risk of fraud and defects in loan applications increased by 15.9% year-over-year. The Defect Index, however, is down 6.8% from its peak in October 2013. "Nationally, defect risk continued to surge in 2019 and in February reached its highest point since 2013," said Mark Fleming, Chief Economist at First American. "Suddenly in March, the accelera- tion stopped." First American also noted there were two trends influ- encing defect risk: the rising share of refinance transactions and the continuation of the sellers' market.

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