Mortgage Defect Rates, Under the Microscope

ACES Quality Management, a provider of management and control software for the financial industry, has released its latest quarterly Mortgage QC Industry Trends Report covering the fourth quarter of 2021, as well as additional year-end results. 

According to ACES, key highlights from the report include:  

• The overall critical defect increased 0.08% to 1.95%, a change of 4% from the prior quarter, as lenders transitioned to a purchase-heavy lending environment. 
• Income/Employment defects declined in overall share but remained the No. 1 most frequently cited issue, even after pandemic-related verification issues had subsided. 
• Appraisal-related defects rose in Q4 2021 after experiencing minimal levels throughout the last refinance cycle. 
• Purchase review share was 20 points higher than refinances. 
• Conventional lending share is now 8 points below the pandemic peak amid a mini-resurgence in FHA lending. 

“While the overall defect rate rose slightly in Q4 2021, defect rates have improved in totality when comparing 2021 to 2020,” said Nick Volpe, ACES EVP. “Given the uptick in Q4 and the persistent issues we’re still seeing in the Income/Employment category, lenders should focus their efforts on shoring up this component of their underwriting process.” 

“As lenders battle over volume, quality control and compliance teams are more important than ever to ensure that the loans that make it through the door meet all regulatory and eligibility requirements,” said Trevor Gauthier, ACES CEO. “On the origination side, we’re seeing the credit box expand to help qualify more borrowers and maintain share. And with 1.3 million loans still in active forbearance along with the renewed focus on servicing from the CFPB and other regulators, servicers and lenders alike must be diligent in their compliance practices to survive this increased level of scrutiny. Leveraging a system like ACES helps both sides of the house ensure they are auditing to the best and most up-to-date standards.” 

Click here to view the report in its entirety.