MReport April 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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56 | TH E M R EP O RT 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 DATA THE LATEST More Loan Application Defects Detected in Purchase Transactions A market index reported a rise in loan application defects as purchase loans take an increasing market share. D efect, fraud, and mis- representation risk has increased as market composition shifts to riskier purchase transactions, ac - cording to the January 2017 Loan Application Defect Index com- piled by the First American Financial Corporation, "While technology adoption has reduced risk for both purchase and refinance transactions, part of the overall decline in risk has been due to the recent dominance of re - finance activity relative to purchase activity," said Mark Fleming, Chief Economist for First American. "As the mortgage market composition continues to shift toward purchase transactions in 2017, the risk of de - fect, fraud, and misrepresentation will also increase." The First American Loan Application Defect Index esti - mates the level of defects detected in the information submitted in mortgage loan applications processed by the First American FraudGuard system. An increase in the index indicates a rising level of loan application defects. "In real estate, location matters. In defect, misrepresentation, and fraud risk, loan purpose matters," Fleming said. The First American Loan Application Defect Index showed that the frequency of defects, fraudulence, and misrepresenta - tion in the information submitted in mortgage loan applications increased 5.8 percent in January 2017 as compared with the previ - ous month. Compared to January 2016, the Defect Index decreased by 3.9 percent, and is down 28.4 percent from the high point of risk in October 2013. As for refinance transactions, the Defect Index increased 3.5 percent month-over-month, and is 9.2 percent lower than a year ago. For purchase transactions, the Defect Index increased 2.5 percent com - pared to January, and is down 1.2 percent compared to a year ago. Fleming said that the market composition of purchase and refinance activity matters because analysis consistently finds refi - nance transactions to be less risky. Currently, refinance transactions have 30 percent less loan application defect, misrepresentation, and fraud risk than purchase transactions. "Defect, misrepresentation, and fraud risk is significantly lower on refinance transactions, so the increased risk of misrepresentation and fraud is due to the increas - ing share of higher risk purchase transactions within the mortgage market," he added. The last time the Loan Application Defect Index experi - enced a significant increase was also in mid-2015 in response to the decreasing share of refinance transactions in the market at the time. The loan purpose risk gap, which measures the difference in risk between refinance and pur - chase loan transactions, has been increasing since October 2014 when the difference was only 4 percent. States with the highest year-over- year increase in defect frequency are Wyoming (32.2 percent), North Dakota (29.0 percent), Montana (27.3 percent), Mississippi (25.4 percent), and Louisiana (20.3 percent). Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with a year-over- year increase in defect frequency are Raleigh, North Carolina (20.9 percent); St. Louis (14.5 percent); Birmingham, Alabama (7.4 percent); Minneapolis (5.5 percent); and Jacksonville, Florida (4.7 percent). In the largest 50 CBSAs, the five markets with the highest year-over- year decrease in defect frequency are Louisville/Jefferson, Kentucky (20.7 percent); Detroit (20.0 percent); Oklahoma City (17.4 percent); Sacramento, California (15.8 per - cent); and Miami (15.3 percent). The Gap in Housing Is Growing Along Gender Lines In a handful of large cities, starter homes are affordable with men's average earnings but not with women's average earnings. M en and women are separated by a hous- ing gap, according to a study by Proper- tyShark. Out of a list of the 50 larg- est U.S. cities, there are nine cities where, on average, a single man can afford a starter home, while a single woman cannot. Affordability in this case is based on the average con - sumer spending at most 30 percent of their income on housing. "With single women's median income considerably lower than that of men in all the cities we looked at, and the trend of real estate prices outpacing income gains in recent years, there are a host of cities that are now effectively out of the reach of potential female buyers and rent - ers," said Adela Muresan, real estate writer for PropertyShark. Out of these nine cities, Houston; Fort Worth, Texas; and Seattle showed the biggest income discrep - ancies. Women on average in these cities make 70 to 73 cents on the dollar compared to men. With the average monthly mortgage payment being between 20 and 30 percent of incomes, unaffordability for women comes as no surprise. Most cities in Texas remain affordable for both genders, while Austin is the only Texas city to be unaffordable for both genders by a large margin. In California, unaf - fordability is the norm, as nearly every city, except for Sacramento, is unaffordable on both sides. Monthly payments on a one-bedroom home in Manhattan, New York; Boston; Miami; and most of the California cities reviewed exceed 30 percent of the average income from both genders. In San Francisco, Boston, and Miami, monthly payments can exceed 80 percent of a single woman's income. In total, there are 14 cities too expensive for either gender; and two cities, Manhattan, New York, and Los Angeles, exceed the average sin - gle woman's entire monthly income. In Manhattan, a single woman would need to pay 119 percent of her income to buy a home. Behind these two cities are San Francisco, Boston, and Miami. Meanwhile, 26 cities are afford - able to both genders and mortgage values in Wichita and Indianapolis can be as low as 10 percent of a single woman's income.

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