Unsettling statistic of the day... or is it?

With much Sturm und Drang, the press has eagerly pounced on a seemingly staggering 7.4% month-to-month increase in mortgage application defects this past December, as announced by First American Title.  Are we seeing the sudden activation of the fraud setting amongst the the hive-mind of home buying mortgage customers?  Is the mortgage bubble ready to burst (again)?

The trends driving the growth in defects, as detailed in a related First American blog post, are more mundane, but still stunning for a different set of reasons.  They are: (1) the rising share of purchase transactions; and (2) the impact of natural disasters

For the many attempting in vain to divine the relationship between these two trends and defects, a clue is Fannie Mae's list of loan defect categories.  For every "misrepresentation" defect that may indicate ill intent, there are multiples of defects that provides indication to the difficulties along the path towards getting a mortgage - the requirements around documentation and proper compilation of data.  Referring back to the two trends... (1) it's more difficult to amass the proper docs for a purchase transactions than it is for a refinance; and (2) naturals disasters tend to render invalid prior appraisal details.

Hence, is it any wonder that those holding the promise of improved customer processes for mortgage origination are getting their moment in the sun?  Better Mortgage, for one, who just announced a rather sizable $70 mm Series C haul.

Of course, one only has to spend a few more moments with the Fannie list to realize that there is another sizable category, those defects that are underwriting constraints, that knock a customer out of contention for a mortgage.  These speak to the limitations of the mortgage product itself.  In Fannie's case, it's the essentially the Qualified Mortgage, the same product that commands roughly four out of five mortgages originated these days.  It's also the same product that's displaying an increasing mismatch with the product, including evidently failing the self-employed.

Until Better can do better for those running afoul of this last category of defects than knocking them out of contention more quickly, is it truly better?