Defects connected to core underwriting and eligibility functions continued to rise
Loan quality improved in the first three months of 2019 but there are some key areas where defects were higher.
The ARMCO Mortgage QC Trends Report highlights that the critical defect rate fell 6%, from 1.93% in Q4 2018 to 1.82% in Q1 2019; but defects related to core underwriting and eligibility functions continued to increase, with more defects attributed to Income/Employment than any other category.
Despite a dip in the fourth quarter of 2018 (16%), defects attributed to missing, expired and/or incorrect documentation continued to be volatile and jumped back in Q1 2019 to the 24% seen in the third quarter of 2018.
Defects related to Property and Appraisal increased noticeably from the previous quarter but remained low overall and government-insured loans accounted for a slightly higher share of all loans in the benchmark with FHA, VA and USDA loans comprising 41% of all loans reviewed.
Meanwhile, compliance-related critical defects fell to their lowest level since Q1 2016, likely the result of greater lender investment in compliance technologies.
“Refi-dominant markets can have a positive impact on defect rates,” said Phil McCall, president of ARMCO. “But when volume goes up, individual workloads increase, turn times extend and mistakes tend to increase. Lenders who leverage technology wisely scale much better and expose themselves to fewer losses as a result.”
