"Suuper Seller" Housing Market Raises Fraud Risk to 13-Month HIgh
Didier Malagies • September 1, 2020
"Super Sellers" Housing Market Raises Fraud Risk to 13 - Month High
‘Super Sellers’ Housing Market Raises Fraud Risk to 13-Month High
National Mortgage News
Written by: Paul Centopani
The refinance boom kept mortgage loan application defect risk flat — at record-low levels in July — but fraud risk for purchases climbed again, according to First American Financial.
First American’s Loan Application Defect Index remained at 61 in July from June, but fell from 76 compared to the same period the year before.That overall annual drop of 19.7% can be attributed to the continual descent of the refinance index. The refi index decreased to a score of 50 in July, down from 52 in June and 69 in July 2019 — a 27.5% decline year-over-year and new record low.
However, the purchase component rose for the fourth month in a row, inching up to 83 from June’s 82 and 80 the year prior. It matched the highest reading since June 2019, driven by the intense competition of inventory shortages. In the last three months, the purchase index rose 7.8% while the refinance side dropped 5.7%.
“Historically low mortgage rates are prompting eager buyers into a housing market with a severe shortage of homes for sale, making for a very competitive home-buying market,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “In today’s super seller’s market, borrowers have more motivation to misrepresent information on a loan application in order to qualify for the bigger mortgage necessary to win the bidding war for a home. If this dynamic persists, it is an environment ripe for rising purchase fraud risk.”
At the state level, Wyoming posted the highest defect score at 79, with 78 in Idaho and 77 in both Maine and South Dakota. Scores of 42 in New Hampshire, 46 in West Virginia and 49 in Alaska were the lowest. Meanwhile, Alaska exhibited the most short-term fraud risk growth, with its index increasing 8.9% in July from June. Vermont’s 7.1% and Pennsylvania’s 5.9% followed.
Broken down to metro areas, the top fraud risk index of 85 came in McAllen, Texas. Syracuse, N.Y., was second at 81 and Chattanooga, Tenn., third at 78. Scores of 47 in San Antonio and 48 in both Bakersfield, Calif., and Detroit occupied the other end of the spectrum.
The largest monthly jump came in Scranton, Pa., with index growth of 24.5%, followed by 7.7% in Des Moines, Iowa, and 7% in Allentown, Pa.
Since all loan transactions are now being done digitally, mortgage companies need to look for digital answers to combat and avoid any fraudulent applications.
“With a sharp increase in fully online transactions, lenders need to be more proactive than ever when it comes to fighting fraud,” Sam Bobley, CEO of Ocrolus, said in a statement to NMN. “The good news is that lenders can now significantly bolster their fraud defense capabilities with just a few lines of code. Lenders can deploy application programming interfaces to fight different types of borrower fraud and programmatically corroborate data across multiple sources.”
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Program Overview Borrower Contribution: You pay 1% of the purchase price as the down payment. Lender provides a 2% grant, bringing your total to 3% down, which is the typical minimum for conventional loans. For example, on a $250,000 home: You pay $2,500 (1%) Lender adds $5,000 (2%) You start owning 3% equity from day one Eligibility Requirements To qualify for ONE+, you must meet all of the following: Income: At or below 80% of your area's median income (AMI) National Mortgage Professional Credit Score: Minimum FICO® score of 620 Property Type: Must be a single-unit primary residence (no second homes or investments) Loan Limit: Loan amount must be $350,000 or l Total Down Payment: With their 2% grant included, your total down payment cannot exceed 5% Mortgage Insurance (PMI) Despite the grant taking you to 3% equity, the program does require mortgage insurance (PMI). National Mortgage Professional The Mortgage Report tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
A 40-year interest-only fixed for 10 years mortgage is a specialized loan product with the following structure: 🔹 Loan Term: 40 Years Total length of the mortgage is 40 years. 🔹 Interest-Only Period: First 10 Years For the first 10 years, the borrower only pays interest on the loan. No principal is paid down during this time (unless the borrower chooses to). Monthly payments are lower because they do not include principal repayment. 🔹 Fixed Interest Rate: First 10 Years The interest rate is fixed during the 10-year interest-only period. This provides payment stability during that time. 🔹 After 10 Years: Principal + Interest After the initial 10 years: The borrower starts making fully amortizing payments (principal + interest). These payments are higher, because: The principal is repaid over the remaining 30 years, not 40. And the interest rate may adjust, depending on loan terms (some convert to an adjustable rate, others stay fixed). ✅ Pros Lower payments early on—can help with cash flow. May be useful if the borrower plans to sell or refinance within 10 years. Good for investors or short-term homeownership plans. ⚠️ Cons No equity is built unless home appreciates or borrower pays extra. Big payment increase after 10 years. Can be risky if income doesn't rise, or if home value declines. 🧠 Example Let’s say: Loan amount: $300,000 Interest rate: 6% fixed for 10 years First 10 years: Only pay interest = $1,500/month After 10 years: Principal + interest on remaining $300,000 over 30 years = ~$1,798/month (assuming same rate) tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
When the 10-year Treasury yield goes down, it generally signals lower interest rates and increased demand for safe-haven assets like U.S. government bonds. Here’s what typically happens across different areas of the economy and markets: 🔻 Why the 10-Year Treasury Yield Drops Increased demand for bonds: Investors buy Treasuries during uncertain times (e.g., recession fears, geopolitical risk), which drives prices up and yields down. Expectations of lower inflation or interest rates: If the Federal Reserve is expected to cut rates or inflation is cooling, yields tend to fall. Weak economic outlook: Slowing growth or a poor jobs report can trigger a yield decline. 📉 Impacts of a Lower 10-Year Treasury Yield 🏦 1. Mortgage Rates and Loans Mortgage rates (especially 30-year fixed) tend to follow the 10-year Treasury. As yields fall, mortgage rates usually decline, making home loans cheaper. This can stimulate the housing market and refinancing activity. 📈 2. Stock Market Lower yields often boost stock prices, especially growth stocks (like tech), because: Borrowing costs are lower. Future earnings are worth more when discounted at a lower rate. Defensive and interest-sensitive sectors (like utilities and real estate) also benefit. 💰 3. Consumer and Business Borrowing Lower Treasury yields can lead to lower interest rates across the board, including for: Auto loans Credit cards Business loans This can boost consumer spending and business investment. 💵 4. U.S. Dollar Falling yields can make U.S. assets less attractive to foreign investors. This can weaken the dollar, which may help U.S. exporters by making goods cheaper abroad. 🪙 5. Inflation Expectations If the yield is falling due to low inflation expectations, it may indicate deflationary pressure. However, if it's just due to safe-haven buying, it might not reflect inflation at all. ⚠️ Potential Risks A sharp drop in the 10-year yield can signal a recession or loss of confidence in the economy. A flattening or inverted yield curve (when short-term rates are higher than long-term) can be a recession warning. tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
