Loan application defect risk continued its downward slide in June, according to a report from First American Financial Corp.
First American reported Friday that its Loan Application Defect Index has dropped 1.4% from May and 12.2% from June 2015. Overall, the index has dropped 5.3% over the past three months, First American chief economist Mark Fleming said in a news release.
"This trend shows no sign of abating," Fleming said. "The index has been reaching new lows this year, continuing its long-term trend."
Fleming cited two major factors that contributed to the index's decline in June. The first is a longer-term trend: improvements made to systems and production standards have mitigated lending risk.
The second, though, is a newer development. The Brexit vote caused mortgage rates to drop significantly, which has led to a slight pick-up in refinance applications.
"Our research finds that refinance applications are inherently less risky than purchase applications, so defect and fraud risk declines as refinance applications become a larger share of the overall mix of loan applications," Fleming said.
"We expect the declining loan application defect risk trend to continue into July, as the impacts of Brexit and global uncertainty keep rates low, triggering an increase in the volume of lower-risk refinance loan applications."
