The rate of critical defects in mortgage loans post-closing continued to decrease in the second quarter, as lenders ramped-up their quality controls, according to the ACES Mortgage QC Industry Trends Report.
The overall critical defect rate fell to 1.72%, a decrease of 3.37% compared with the previous quarter.
The second quarter marked the third consecutive quarter of decline for critical defects.
Defects in the Credit and Liabilities categories increased for the second straight quarter.
Although the Income/Employment and Assets categories continued to improve, these remained the top two defect categories, followed by Loan Documentation.
Analysis of the core underwriting sub-categories showed dramatic improvement in Asset Eligibility from the first quarter, whereas Credit Documentation and Income/Employment quality deteriorated significantly.
After increasing slightly in the first quarter, Appraisal defects declined in the second quarter.
“The downward trend in critical defect rates over the last few quarters speaks to the care lenders are putting into each loan,” says Nick Volpe, executive vice president for ACES, in the report. “At a time when every loan originated matters, lenders are taking quality control seriously and doing all they can to prevent buyback requests from the GSEs.
“Critical defect rates continue to trend in the right direction, and now, with interest rates trending down at the time of this report, we’re looking forward to seeing lenders maintain high loan quality as the market once again changes,” Volpe adds.
“Our findings for Q2 have been a welcoming of positive news, and with continued predictions for a more robust origination environment in 2024, the future looks bright for lenders that have survived the drop in volume and increased QC scrutiny,” says Trevor Gauthier, CEO for ACES. “The lenders that have been successful in 2023 are those that have embraced QC and prepared for the next market shift. We’re looking forward to watching lenders continue to keep quality at the forefront of their operations.”
Photo: Lance Grandahl