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Fraud, misrepresentations, and loan defects are rising as refinances decline and purchase activity increases.
According to The First American Financial Corporation, their Loan Application Defect Index rose 5.8% in January 2017, as compared to last year. This trend started in December of 2016.
As the industry pushes to qualify more potential homebuyers in a rising rate environment, it experiences more problems from loan defects and borrower (or another party) misrepresentations.
Could it be that some borrowers, in their desire to purchase a new home, are providing more creative applications? Or, maybe with business transactions down a little, some Realtors and/or lenders are once again pushing the envelope a little too far in attempts to qualify more marginal applicants for loans?
Either way, it’s dangerous for the industry. Hopefully, we learned our lessons. Short term solutions cause long term headaches and cost quite a bit of money.
We’ve come a long way in the manufacturing of a quality loan. Now is not the time to cut corners.
There are programs available to assist the first time and low to moderate income home buyers, as well as for those with slightly bruised credit. The time and effort it takes to find these products and become proficient in originating them, is well worth it.
In addition, the time and investment in the required pre and post-closing reviews will avoid and eliminate the problems that stem from fraud and misrepresentations. Early defect identification for correction should help before they cost you big money.
There is no substitute for doing things the right way. Be on the lookout for potential problems from fraud and misrepresentations.
An ounce of detection is worth a pound of correction. Keep the “quality” in quality control.
