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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 Defect Risk Simmers, Except in Hurricane- Damaged Markets According to the latest First American Loan Application Defect Index, the surge in the defect, fraud, and misrepresentation risk that started a year ago has finally lost momentum. W hile the Index remained the same compared with the previous month, it did experience an increase year-over-year by 22.1 percent. However, the Index is still down 18.6 percent from the high point of risk in October 2013. In terms of refinancing transac - tions, the Index decreased 1.4 percent month-over-month and is 19 percent higher than a year ago. In addition, purchase transactions remained unchanged compared with the previous month and are up 12.5 percent from a year ago. "The Loan Application Defect Index has either remained un - changed or declined in every month since July, and the index value is the same level as in the sum- mer of 2015," said First American Chief Economist Mark Fleming. "Nationally, defect, fraud and misrepresentation risk has stabilized, but the local impact of recent natu - ral disasters remains a concern." Fleming explains that the cur- rent data seems to validate that there is a correlation between natural disasters and rising loan application defect risk. "Our defect, fraud and misrep - resentation risk index shows the largest month-over-month increases in defect risk are in hurricane- impacted markets," said Fleming. "Even Houston, one of the largest markets in the country, is not im - mune to the rising defect risk." In October, four of the five markets with the greatest in- creases in defect risk compared with September is in Florida and Texas: Lakeland, Fla. (+11.9 percent), Virginia Beach, Va. (+8.4 percent), Cape Coral, Fla. (+5.9 percent), Orlando, Fla. (+5.9 per - cent), and Houston (+5.6 percent). Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with a year-over- year increase in defect frequency are Virginia Beach, Virginia (+47.5 percent), Raleigh, North Carolina (+34.8 percent), Orlando, Florida (+28.6 percent), Kansas City, Missouri (+27.4 percent) and Louisville, Kentucky (+27.1 percent). States with the highest year- over-year increase in defect frequency are South Dakota (+50.8 percent), North Dakota (+47.1 percent), New Mexico (+38.5 percent), Iowa (+38.3 percent) and Idaho (+36.0 percent). Meanwhile, one state experienced a year-over- year decrease in defect frequency: Connecticut (-4.3 percent). Chief Economist Examines Impact of Credit Profiles LendingTree.com takes a look at consumer loan prospects. I n an effort to empower consumers by providing ad- ditional information on how their credit profile affects their loan prospects, LendingTree.com recently released its November Mortgage Offers Report with their Chief Economist Tendayi Kapfidze's analysis of November's mortgage offers. Utilizing data from actual loan terms offered to borrow - ers by lenders, Kapfidze finds that consumers with the highest credit scores (760+) offered annual percentage rates (APRs) of 4.16 percent in November, compared to 4.43 percent for consumers with scores of 680-719. According to Kapfidze, the APR spread of 27 basis points (bps) between these score ranges was 5 bps wider than in October—and the widest since July 2016—representing almost $13,400 in additional costs for bor - rowers with lower credit scores over 30 years for the average pur- chase loan amount of $233,127. "The spread between the high- est and lowest score buckets is widening," Kapfidze told MReport. "This means although rates have been in a downward trend this year after last December's spike, lower credit score borrowers have not benefitted. This may signal that lenders are tightening stan - dards on lower quality borrowers by increasing risk-based pricing add-ons." In terms of refinancing APRs for conforming 30-yr fixed loans, they were down 2 bps to 4.24 percent. The credit score bracket also expanded to 19 from 16 bps, amounting to $9,500 in extra costs over the life of the loan for lower credit score borrowers given an average refinance loan of $235,973. While the additional costs are due to higher interest rates, larger fees, or a combination of the two, Kapfidze explains, "A better credit profile increases borrow - ers' loan options and lowers their price. This gives a borrower more buying power, which ultimately means more opportunity in the housing market to obtain a prop - erty that meets the borrower's requirements." The best offers for borrow- ers with the best profiles in November had an average APR of 3.75 percent for conforming 30-year fixed purchase loans. Meanwhile, refinance loan offers were down 1 basis point (bps) to 3.69 percent. The report notes that purchase APRs for conforming 30-yr fixed loans offered on LendingTree's platform were down 1 bps to 4.30 percent for the average borrower, the lowest since the same time last year. Conversely, the loan note rate of 4.18 percent was unchanged from October when it reached the highest since July. In addition, the average pro - posed purchase down payments have been rising for 8 months and reached $62,409. In the end, Kapfidze offered additional insight for borrowers. "The savings from a higher credit score can be combined with savings from shopping for a loan to create even greater benefits for a borrower," Kapfidze added. "In today's competitive market, prospective buyers should reach for every advantage available."