The report found that overall defect risk declined by 8% compared to the second quarter of 2020, the first drop in defects since the start of the pandemic.
The decline was driven by a decrease in both fraud and misrepresentation/misstatements, decreasing by 4.6% and 10.5%, respectively. Fraud is defined as any attempt to commit mortgage loan fraud, such as providing false information or using stolen identity. Misrepresentations/misstatements are errors made by applicants on their mortgage applications such as incorrect loan amounts, down payments or total loan amounts.
The report also noted a decrease in Property/Title Defects which declined by 7.3% in the 3rd quarter of 2020. Property or title defects are mistakes or discrepancies in documents pertaining to land ownership or titles and can lead to legal disputes.
The report attributed the overall decrease in defect risk primarily to the decrease in fraud. However, it was also noted that the decrease in fraud could be due to the fact that people were largely staying at home and not pursuing new mortgage applications. In other words, there was less activity in the market, so fewer opportunities for fraud occurred.
The report concluded that while the decrease in defect risk can be seen as a positive sign, the market continues to remain vulnerable to fraud. It also noted that lenders should remain vigilant in monitoring their loan portfolios to ensure that all applicable rules and regulations are met and that all transactions conducted are properly documented and fraud-free.
Overall, the Mortgage Application Defect Index reported that overall defect risk fell by 8% in the 3rd quarter of 2020. This decrease was largely attributed to a decrease in both fraud and misrepresentations/misstatements which decreased by 4.6% and 10.5%, respectively. The decrease in fraud can likely be attributed to the fact that there was less activity in the market due to people staying at home. Property/title defects also decreased by 7.3%. However, even despite the decrease in defect risk, the report concluded that the market remains vulnerable to fraud and that lenders should remain vigilant in monitoring their loan portfolios to ensure that all applicable rules and regulations are met.
This article was contributed on Jul 05, 2023
