MReport May 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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46 | 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 THE LATEST ORIGINATION Priced Out of Housing A study has found that home affordability is at its lowest since 2009, as median home values hit an all-time high. H ow much does it take to buy an average sin- gle-family home in the country? The answer would be approximately $283,000, according to Black Knight, Inc.'s Mortgage Monitor Report. Median home values in the U.S. increased by $17,570 and hit an all- time high of $283,000 by the end of 2017, making this the largest rise in home values by dollar amount since 2006. The monthly report, which looks at a variety of issues related to the mortgage and financial services industry including home affordability, indicated that home prices appreciated at a rate of 6.6 percent in 2017. This was the highest appreciation rate since 2013, and above the 25-year average of 3.8 percent. But what does this data mean for the average homebuyer? If we look at it in terms of stark numbers, the recent hikes in mortgage rates coupled with the rising home pric - es means that a borrower would have to pay $67 more per month to purchase a home that comes within the average median value. "Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008," the report said. "It currently takes 23 percent of the median income to purchase the median home, the highest share since 2009." Additionally, rising rates could add pressure on borrowers with below average incomes buying below average priced homes, as affordability is lower in those segments compared to long-term benchmarks and rising rates. Despite these rises and strain on affordability, the report indicated that purchasing the median home required 1 percent less of the median income than it did from 1995-1999, 3 percent less than 2000- 2003, and two percent below those combined benchmarks (1995-2003). "Average incomes are more than 20 percent higher today than in 2006 (according to the Census Bureau) and interest rates 2.3 percent lower. As such, affordability remains much better than at the pre-recession peak, even though today's home prices have surpassed 2006 levels," the report said. "Assuming all else remains equal, to return to 2006 affordability levels, interest rates would have to climb north of 8 percent or the median home price increase to $420,000." Defect Frequency in Mortgage Apps on the Rise The frequency of defect, fraud, and misrepresentation in information submitted during the mortgage application process has increased over the past year. T he frequency of defect, fraud, and misrepresentation in information submitted during the mortgage application process has increased over the past year, according to the First American Loan Application Defect Index released by First American for January 2018. The index, which reflects estimated mortgage loan defect rates over time, geography, and loan type increased by 13.7 percent in January 2018 in a year-over-year analysis. On a month-over-month basis, the index remained unchanged and was down 18.6 percent from its high point of risk in October 2013. First American also estimates the risk of defect in refinance and purchase transactions through this index. While the defect index for refinance remained unchanged, purchase transactions increased by 1.1 percent in January 2018 compared to December 2017. On a year-over-year basis, the defect index for purchase transactions rose 10.8 percent. "The overall defect, fraud, and misrep - resentation risk index remained un- changed, however, the index for purchase transactions increased in January," said Mark Fleming, Chief Economist at First American. "While misrepresentation and manufacturing defects can happen on either purchase or refinance transactions, there is a greater propensity for fraud with purchase transactions." When observed at a state-level, de - fect risks were rising rapidly in Florida, increasing 6.5 percent since September 2017. According to Fleming, this was because the high-rise condominiums along the Florida coast were home to the highest risk of loan application defects, frauds, and representa - tion. "Florida is currently the third riskiest state according to the defect, fraud and misrepresentation risk index, and by far the largest state among the five most risky. The other states in the top five are Arkansas, Idaho, Wyoming, and North Dakota," Fleming said. At a 39.7 percent year-over-year increase, South Dakota led the states in defect frequency. South Dakota was followed by New Mexico where defect frequency increased 29.9 percent, Wyoming (24.4 percent), Oregon (23.9 percent), and Ohio (23.1 percent).

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