The rate of defects in mortgage loans post-closing increased 3.27% to 1.58% in the first quarter, ending five quarters of decline, according to ACES’ Mortgage QC Q1 Industry Trends Report.
The highest rate of defects fell into the report’s Income/Employment category. However, ACES notes that there was a significant quarter-over-quarter improvement in this category.
Defects in the Legal/Regulatory/Compliance category increased 208.37% to a rate of 16.22%, becoming the second-highest category of defects in the second quarter, followed by Loan Documentation at 14.41%.
“Given origination levels in the first quarter of this year, the findings in this report showed greater changes than expected,” says Nick Volpe, executive vice president for ACES, in a statement. “Historically, defect rates decrease when there is a decline in origination levels; however, that was not the case for the first quarter. Mortgage lenders are no strangers to market adversity. While the market is shifting, we hope this report will serve as a reminder to reinforce quality control across the board.”
“The current mortgage market presents distinct challenges that lenders must navigate with precision,” adds Trevor Gauthier, CEO of ACES Quality Management. “Although the critical defect rate remains low by historical standards, the increase in a quarter with record-low origination volumes is concerning.”
“Notable rises across underwriting categories and unexpected insurance defects need closer scrutiny from lenders,” says Gauthier. “Overall, the data clearly shows that lenders are under increasing pressure to maintain quality amid changing market dynamics. A proactive approach to quality control is crucial for mitigating risk and ensuring long-term stability.”
Photo: Lance Grandahl
