The rate of critical defects in mortgage loans increased to 1.95% in the fourth quarter of 2021, according to the ACES Quality Management Mortgage QC Industry Trends Report.
That’s an increase of 4% compared with the third quarter of 2021.
The report analyzes post-closing quality control data derived from ACES Quality Management & Control software.
Defects related to income/employment decreased in overall share but remained the most frequently cited issue, even after pandemic-related verification issues had subsided.
Appraisal-related defects increased after experiencing minimal levels throughout the last refinance cycle.
“While the overall defect rate rose slightly in the fourth quarter, defect rates have improved in totality when comparing 2021 to 2020,” says Nick Volpe, executive vice president, ACES, in the report. “Given the uptick in the fourth quarter and the persistent issues we are 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,” adds Trevor Gauthier, CEO, ACES. “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.”
Photo: Ivan Vranić