The rate of critical defects in mortgage loans post-closing was about 1.16% as of the end of the fourth quarter, reflecting a 23.18% decrease compared with the third quarter of 2024, according to ACES Mortgage QC Industry Trends Report.
That’s the second-lowest defect rate on record while full-year results reflect a 9.5% year-over-year improvement despite lingering compliance and eligibility risks.
The report analyzes post-closing quality control data derived from ACES Quality Management & Control software.
For the full calendar year 2024, the average critical defect rate was 1.52%, a decrease of 9.52% compared with 2023.
Of the four major underwriting categories, Assets, Income/Employment and Credit improved inn the fourth quarter, while the Legal/Regulatory/Compliance and Product Eligibility categories saw increases.
On a year-over-year basis, only Income/Employment and Assets saw declines.
In the fourth quarter, Legal/Regulatory/Compliance emerged as the leading defect category, followed by a tie between Assets and Income/Employment.
Refinance review share increased in the fourth quarter, while purchase review share decreased.
Refinance defect share increased modestly, while purchase defect share fell.
“Lenders made meaningful progress in loan quality in 2024, closing the year with one of the lowest quarterly critical defect rates we’ve ever observed,” says Nick Volpe, executive vice president for ACES, in a statement. “However, continued volatility across the Legal/Regulatory/Compliance and Insurance categories, as well as within the Income/Employment Eligibility subcategory, highlights the importance of ongoing diligence in quality control efforts.”
Photo: Ivan Vranić