With consumers having less money available for a down payment, lenders are forced to stretch the credit and income limits to qualify potential home buyers for higher priced homes.
Now, we start to see the flip side. Loan defects, fraud, and misrepresentations once again increased in May’s production. These have now reached their highest levels since 2015. That is definitely not good for anyone.
The First American Loan Defect Index for May reached 83, which is up 2.5% over April and 13.7% over May of 2016. The good news is that for now, it remains below the peak reached in 2013.
Some other notes from the Index:
- Purchase index for May was 90
- Purchase index is 9.7% over April, up 11.1% YOY
- Refinance index came in at 68
- Refi index is up almost 10% YOY.
This indicates that purchase business is a little riskier than the refinance loans. This is something to keep in mind when generating new business.
It’s understandable in a competitive market that lenders will be more creative in garnering and originating new business. Low down payment loan programs, with eased credit standards, allow them more flexibility when approving loans. But, they need to be careful not to push the envelope too far.
The pressure is on. Everyone is looking for more business, including Realtors and builders. Lenders need to take complete accurate applications and vet each applicant and property, very carefully. Quality and compliance never go out of style.
Review all new loans to quickly identify and correct defects and potential problems. Pre and post-close QC reviews will help, but everyone needs to get into the act.
Don’t allow risky loans, with increased defects, (or worse) fraud and misrepresentation, suck the profits out of your company. A bad loan…is a bad loan, regardless of price.