New Mortgage Loan Defect Report Shows That TRID Is A Major Source Of Defects

ARMCO, a provider of risk management solutions to the mortgage industry, recently released its inaugural Loan Defect Trends report, a quarterly report that uses data from ACES Analytics, the company’s quality control benchmarking platform.

Because ACES Analytics was released in September 2014, the firm now has more than two years of data on which to base this new report.

The report will only become more accurate as the company collects more loan defect data from customers and non-customers.

Unlike other loan application defect indexes, the ARMCO report breaks down loan defects using the Fannie Mae loan defect taxonomy to better identify where defects are occurring.

In its inaugural report, the firm finds – perhaps not to anyone’s surprise – that the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure (TRID) rule significantly boosted the number of defects in the first quarter.

They were mostly minor defects, however. The number of “critical” defects – the type that would normally prevent a loan from funding, if caught during the process – dropped to below 1%.

This reduction in critical defects is due, in part, to standardization of the mortgage process, which is being brought about through regulation and increased use of technology and automation.

“Due, in part, to the agency and regulatory focus on lending quality and consumer protections, the mortgage industry has seen a dramatic improvement and standardization of how critical defects are being identified and reported,” said Phil McCall, chief operating officer at ACES Risk Management, ARMCO. “It would be difficult to overstate the significant role served by technology investments that have enabled lenders’ a deeper insight into their processes and manufacturing defects.”

The report also finds that the old, nagging problem of missing documentation still has not gone away for the industry.

However, it is trending downward. In 2015, missing documentation accounted for more than 35% of the overall defects. As of the end of the first quarter, however, this had been reduced to 25%.

To check out the full report, click here.


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