Mortgage critical defect rates improve, but problems remain

Mortgage production defect rates continued to improve in Q3 2023, even as Since original quantities are difficult to obtainthe latest Aces quality management report found.

The company’s post-closing review process uses the Fannie Mae Defect Taxonomy to classify documentation errors. Defects are indicators of fraud but are not necessarily evidence of fraud.

The defect rate in the third quarter was 1.67%, which was 5 basis points better than 1.72%. second season The highest point occurred in the third quarter of 2022 at 2.47%.

This is the lowest interest rate 1.56% since Q1 2020Finally, restrictions related to the Covid-19 pandemic have impacted every aspect of American life.

Lenders have better control over quality during loan creation process Peak one year agoAces executive vice president Nick Volpe said in a press release that the decline in the number of originals may benefit original creators to some extent.

Volpe said: “While lower loan volumes may give lenders the opportunity to increase their focus on quality, it is clear that maintaining high standards amid market volatility remains critical. The persistence of this trend highlights the industry’s Adaptability and the ability to be committed to ensuring loan integrity.” approach. “

Income and employment issues remained the most common deficiencies at 23.4%, an improvement from 31.25% in the second quarter.

Revenue documentation issues accounted for 27% of this category, down from 47% in the previous period, but revenue calculation issues accounted for 55%.

“In the context of competition for every loan, one would expect the calculation subcategory to pick up much of the shortfall in the income/employment category — a process that many hard-to-qualify borrowers are experiencing,” the Aces report said.

The company saw an increase in deficiencies related to loan documents and borrower and mortgage qualification issues.

Typically, loan documents can fluctuate more from quarter to quarter than other categories. However, Aces said the change this quarter was more pronounced, rising nearly 7 percentage points from 12.5% ​​to 19.15%.

It attributed the increase to addressing documentation deficiencies, followed by upfront documentation collection in the application processing subcategory.

“These types of defects are often attributed to sloppiness in the manufacturing process,” Ice said.

General qualifications account for 52% of borrowers’ mortgage qualification deficiencies. Typically, this means that the cash-out refinance requirements are not met, the property is listed for sale to obtain a refinance, the debt-to-income ratio is too high, and there are deficiencies common to various other loan types.

“As more hard-to-qualify loans enter the lender pipeline, underwriting must take into account nuances related to the borrower’s specific circumstances and the type of loan selected,” Aces said.

The liability-type defect rate also increased from the previous quarter, rising from 8.33% to 11.35%; the assessment-related defect rate, although less common, rose from 3.47% to 4.26%.

Although FHA-insured mortgages accounted for 24.11% of documents reviewed, the defect rate was 42.61%.

On the other hand, conventional loans accounted for 59.55% of reviews, but had documentation flaws 48.7% of the time. VA-guaranteed loans accounted for 14.22% of quality checks, but only 6.96% had errors.

“last year, Thriving Lender “We eagerly look forward to witnessing lenders continue their strong commitment to prioritizing quality as they navigate future market dynamics,” said Aces Chief Executive Officer Trevor Gauthier.

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