Critical defect rates declined through the first three quarters before climbing in Q4
(DENVER, Colo.) — NEWS: ACES Risk Management (ARMCO), the leading provider of enterprise quality management and control software for the financial services industry, announced the release of the quarterly ARMCO Mortgage QC Trends Report. The latest report, which provides nationwide loan quality findings based on data derived from ACES Audit Technology(TM) covers both the fourth quarter (Q4) and the 2019 calendar year (CY).
“Reduced interest rate volatility and declining interest rates over the course of the year created an environment in which lenders rode a sustained wave of refinances, increased their overall loan production and improved their profitability – all of which contributed to the improvements in loan quality in 2019,” said ARMCO Executive Vice President Nick Volpe. “With the rate environment expected to remain unchanged throughout 2020, the loan quality levels observed in 2019 seem sustainable. However, this forecast does not and cannot account for the anomalies triggered by the COVID-19 pandemic. Therefore, lenders will need to keep a sharp eye out for negative spikes in their loan data as 2020 continues.”
The report’s noteworthy findings include:
* On a quarter-over-quarter basis, critical defect rates improved in the first three quarters of 2019 before reversing the decline and climbing in Q4 2019.
* Q4 2019 ended with a defect rate of 1.73%, an increase of 11% from Q3 2019.
* The share of conventional loans increased from 56.40% in CY 2018 to 61.99%, representing a nearly 6% increase.
* Purchase share fell 7.5% in CY 2019 as compared to CY 2018.
* Regulatory compliance issues were down 51% year-over-year, to a multi-year low of 5.17% of all critical defects.
* Loan Package/Documentation defects were volatile in CY 2019 but did post a 12% improvement compared with CY 2018.
* Income, Assets, and Credit (key qualification/underwriting criteria) related defects made up 53% of all critical defects in CY 2019, with Income and Credit increasing from the prior year, and Asset defects decreasing.
* Market stability contributed to an overall better 2019 for lending quality. However, these improvements will be severely tested as data comes in for the coming quarters as we start to see COVID’s impact on mortgage lending.
The Q4/CY 2019 ARMCO Mortgage QC Industry Trends Report is based on nationwide post-closing quality control loan data from over 90,000 unique loans selected for random full-file reviews, as was captured by the company’s ACES Analytics benchmarking software. Defects listed in the report are categorized using the Fannie Mae loan defect taxonomy.
“While 2019’s critical defect rates represent a clear improvement over 2018 and suggest a continuation of that trend moving into 2020, the increase in forbearance requests, high unemployment rates and the potential for early payment defaults to spike later in the year will certainly put this prediction to the test,” said ARMCO CEO Trevor Gauthier. “Recognizing the potential need for lenders to ramp up their EPD audit volume, ARMCO launched ACESXPRESS for Early Payment Defaults to better prepare our clients for this possibility and ensure they had a turnkey platform to help them maintain audit requirements and keep a vigilant eye on this potential source of risk.”
Volpe will analyze the findings from the Q4/CY 2019 ARMCO Mortgage QC Industry Trends Report and offer insights into what lenders can expect in future quarters during a webinar titled, “Insights into Mortgage QC Trends – Past Highlights and Predictions for 2020,” as part of its on-going QC NOW Web Series. To access the webinar recording, visit https://www.armco.us/learn/webinars/qc-now.
ARMCO Mortgage QC Industry Trends Reports are available for download, free of charge, at https://www.armco.us/learn/reports.
ACES Risk Management (ARMCO) is the leading provider of enterprise quality management and control software for the financial services industry. More than half of the top 50 lenders and two of the top five U.S. commercial banks rely on ACES Audit Technology(TM) to improve audit throughput and quality while controlling costs. Unlike other quality control platforms, only ACES delivers Flexible Audit Technology, which gives independent mortgage lenders and financial institutions the ability to easily manage and customize ACES to meet their business needs without having to rely on IT or other outside resources. Using a customer-centric approach, ARMCO clients get responsive support and access to our experts to maximize their investment. For more information, visit www.armco.us or call 1-800-858-1598.
Related link: https://www.armco.us/
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