Increase ends multi-quarter trend of decline but critical defect remains lower than the ‘COVID Peak’ of Q3 2020
(DENVER, Colo.) — NEWS: ACES Quality Management® (ACES), the leading provider of enterprise quality management and control software for the financial services industry, announced the release of its quarterly ACES Mortgage QC Trends Report covering the second quarter (Q2) of 2021. The latest report provides an analysis of post-closing quality control data derived from ACES Quality Management & Control® software.
Notable findings from the Q2 2021 report include:
* A 13% increase in the overall critical defect rate to 2.27%, ending a multi-quarter trend of improvement;
* The continued dominance of the Income/Employment defect category, which reached its highest observed rate since the inception of this report in 2016;
* Improvement in some of the core underwriting categories as well as in manufacturing-related categories, most likely driven by more predictable and stable volumes;
* A significant shift in reviews of refinance versus purchase transactions, further signaling that the transition from a refinance market to a purchase market is well underway;
* Increased share and improved performance for conventional loans; and
* A decline in Early Payment Defaults (“EPDs”), indicating that reviews have peaked and are now below pre-pandemic levels.
“Several factors contributed to the increase in the critical defect rate to 2.27% in Q2 of 2021, including the transition from a refinance market to a purchase market, the previous quarter’s falling margins, eviction moratorium uncertainty and rising inflation,” said ACES Executive Vice President Nick Volpe. “As the market continues to transition to primarily purchase transactions, lenders should expect continued volatility over the next few quarters and, therefore, keep a close watch on defects for the foreseeable future.”
Findings for the Q2 2021 ACES Mortgage QC Industry Trends Report are 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.
“While the increase in the critical defect rate was disappointing, there are several silver linings to our Q2 findings, including volume stabilization and declining unemployment numbers. These, combined with other economic factors, provide some optimism for the coming quarters, though the possible effect of inflation on interest rates may dampen that outlook,” said ACES CEO, Trevor Gauthier. “Given the uncertainty of 2022’s market and increasing regulatory pressures, lenders must ensure their existing QC and compliance programs are leveraging automation to maximize loan quality and mitigate risk.”
Mortgage QC Industry Trends Reports are available for download, free of charge, at https://www.acesquality.com/resources/reports.
About ACES Quality Management
ACES Quality Management, formerly known as ACES Risk Management (ARMCO), is the leading provider of enterprise quality management and control software for the financial services industry. The nation’s most prominent lenders, servicers and financial institutions rely on ACES Quality Management & Control Software® to improve audit throughput and quality while controlling costs, including:
* 3 of the top 5 and more than 50% of the top 50 independent mortgage lenders;
* 7 of the top 10 loan servicers;
* 11 of the top 30 banks; and
* 1 of the top 3 credit unions in the USA.
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, ACES clients get responsive support and access to our experts to maximize their investment. For more information, visit https://www.acesquality.com/ or call 1-800-858-1598.
Related link: https://www.acesquality.com/
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