The rate of defects in mortgage loans post-closing fell in the fourth quarter of 2022 as mortgage origination volume slowed to a trickle, according to ACES Quality Management’s latest Quality Control Trends Report.
As per the report, only 1.84% of loans sampled included critical defects – that is, errors that otherwise might have prevented the loan from closing without additional exceptions.
Thats a drop of 25.5% compared with the third quarter.
The drop is significant because the critical defect rate was well above 2% for the first two quarters of 2022.
The annual defect rate for 2022 was 2.07%.
“After the third quarter’s historic high of 2.47 percent, the reduction in the fourth quarter’s critical defect rate to a sub-2-percent level is encouraging and illustrates just how much the precipitous drop in origination volumes impacted lending operations,” says Nick Volpe, executive vice president, ACES, in the report. “However, lenders are starting to see the GSEs take an aggressive stance on repurchase requests for loans with curable defects. In addition, HUD has yet to complete its reviews of some vintage FHA loan production, an area notorious for defects. All of this may spell trouble for lenders that are already financially strapped due to declining volumes.”
Income and Employment remained the leading category of defects reported, within the report, with Assets, and Borrower and Mortgage Eligibility, completing the top three categories of defects cited.
A sub-category analysis of the Assets and Income/Employment categories found documentation to be the leading driver of defects within these two categories.
Appraisal defects also increased in the fourth quarter, ending another multi-quarter trend of decline.
Photo: Lance Grandahl
