Look out, things are starting to slip. With the home mortgage market turning from refi’s to purchases, rates rising, and a housing shortage along comes an increase in loan defects, fraud, and misrepresentations.
The good news, according to the most recent First American Financial Corp’s Loan Application Defect Index, is that the defect rate for both refinances and purchases remained unchanged from November to December in 2017.
The bad news, the index was up more than 20% year over year. The annual defect rate changes in 2017:
- In refinances up by 21.1%
- In purchase loans up by 12.3%.
Overall, this index is down about 18.5% from its high point in 2013.
The increase in 2017 is attributable to the increase in purchase home loans which are believed to carry a higher level of risk. Most economists agree (a rarity) that rates will increase further throughout 2018.
The MBA is predicting that rates may hit 5% by year-end. With this rise in rates, we’ll see fewer refis and more purchase business which could lead to more defects, fraud, and misrepresentations in 2018 and beyond.
Hopefully, with the warning, this can be avoided. Lenders need to do the things they were doing when reducing the defect rates.
This will require more diligence due to the increased risks associated with purchase loans. These loans have more moving parts than the refi with more players involved and more pressure to get them done. Nobody wants to see a signed purchase deal fall through. More incentive for a little hanky-panky.
It’s time to once again lock down the process and make sure fraud doesn’t sneak in through the back door. Lenders need to carefully analyze all parties to their transactions, the information and documentation provided, from where, and whom, it comes.
Check, re-check, and validate everything. Do not leave anything to chance.
This can get time-consuming and expensive. You need technology that provides you with a rules-based process to allow a quick and comprehensive review of loans both before and after closing.
Technology can identify loan and process defects for immediate adjustments and corrections along with potential fraud and misrepresentations.
Then, it’s time to jump into action with follow up plans to track activity and training for needed adjustments. This is as important as the audit and identification process. Otherwise, identified problems may continue.
Now, you’ve been warned. What you decide to do to avoid the potential for increased defects, fraud, and misrepresentation is entirely up to you. You can act now or wait, hoping these won’t happen to you. You make the call…
An ounce of detection is well worth a pound of correction. LoanLogics can help.