The rate of critical defects in mortgage loans post-closing was 1.51% in the second quarter, an increase of 15.27% compared with 1.31% in the first quarter, according to ACES’ Mortgage QC Industry Trends Report.
Driving the increase was refinance complexity, which tests loan quality, the firm says.
Collateral, eligibility and regulatory defects increased as cash-out refinances grew, however overall core underwriting quality continues to strengthen.
Appraisal defects surged 156.5%, while borrower/mortgage eligibility defects more than doubled to 15.87%, according to the report.
Income/employment defects improved 19.7%, falling from 22.99% to 18.45% of all critical defects.
Loan documentation and insurance defects declined 32.6% and 25.2%, respectively.
“Although the overall critical defect rate increased for a second straight quarter, the situation is nuanced,” explains Nick Volpe, executive vice president at ACES Quality Management, in the report. “The rise was mainly in specific categories such as appraisals and eligibility-related areas. Meanwhile, other key underwriting areas saw notable improvements. This mixed performance demonstrates the importance of continuous monitoring and targeted quality control efforts.”
Photo: Lance Grandahl