Mortgage critical defect rates improve, but problems remain
Mortgage production defect rates continued to improve in Q3 2023, even as
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%.
This is the lowest interest rate
Lenders have better control over quality during loan creation process
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.
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