The rate of defects in mortgages post-closing fell to 1.67% in the third quarter of 2023, according to ACES’ Q3 2023 Mortgage QC Trends Report.
That’s a decrease of 2.91% compared with the second quarter of 2023.
It was the fourth consecutive quarter that the rate of defects decreased – the result of low mortgage origination volume.
Defects in the Credit and Income/Employment categories decreased significantly, while defects in the Liabilities category increased.
Despite its improvement over the last quarter, Income/Employment continues to lead all defect categories, followed by Loan Documentation and Borrower and Mortgage Eligibility.
Appraisal defects edged up slightly in Q3 after declining in Q2.
Once again, purchase and refinance transactions achieved relative defect parity, thus firmly solidifying the market’s status as being purchase-driven.
“With the last years’ worth of defect data trending downward, it’s clear lenders have gotten a better handle on loan quality after the alarming spike observed in the third quarter of 2022,” says Nick Volpe, executive vice president for ACES, in a statement. “A natural result of proactive remediation efforts.
“However, we would be remiss in not acknowledging the corresponding decline in origination volume,” Volpe adds. “While fewer loans may afford lenders the opportunity to intensify their focus on quality, it’s clear that maintaining high standards amidst market fluctuations remains paramount. The persistence of this trend underscores the industry’s adaptability and dedication to ensuring the integrity of lending practices.”
The report is based on post-closing quality control data derived from the ACES Quality Management and Control benchmarking system and incorporate data from prior quarters and/or calendar years, where applicable. All reviews and defect data evaluated for the report were based on loan audits selected by lenders for full file reviews.
“As a provider of QC management software, it’s been especially gratifying to observe the industry bolster its QC efforts over the last several quarters,” says Trevor Gauthier, CEO for ACES. “With the market inevitably poised for shifts, lenders are now better equipped to manage changes in volume and adapt to regulatory changes. Last year, the lenders that thrived were those who embraced quality control and proactively prepared for the evolving market landscape. We eagerly anticipate witnessing lenders maintain their steadfast commitment to prioritizing quality as they navigate future market dynamics.”
Photo: Lance Grandahl