Though they have a reputation for being precarious, Federal Housing Administration loans are leading the decline in mortgage application defect risk, according to First American Financial Corp.
First American reported that its monthly Loan Application Defect Index for August released Friday remained unchanged from July and was 14.6% down from 2015. But the defect risk score for FHA, Veterans Affairs and U.S. Department of Agriculture loans dropped even more.
"While FHA loans are generally considered to have higher credit risk than conventional loans, according to the defect index, conventional loan risk is down 14.6% over a year ago, compared with a year-over-year decline of 17.7% for transactions involving FHA/VA/USDA loans," First American chief economist Mark Fleming said in a news release.
"In fact, loan application and defect risk on transactions involving FHA/VA/USDA loans has declined more in recent years than the defect risk for conventional mortgages."
Additionally, Fleming said transactions involving FHA, VA and USDA loans are currently 14.5% less risky than transactions involving conventional loans.
Looking at risk on a state and local market basis, Maine had the largest increase in defect frequency of any state at 19.2%, while St. Louis was the only city to see higher defect frequency with a 2.7% uptick.
