Critical defects related to borrower and mortgage eligibility led defect categories during the quarter
The first quarter saw the critical defect rate reach 1.61%, continuing an upward trend, according to ARMCO’s Mortgage QC Industry Trends Report.
The rate for the first quarter is a 7% increase from the fourth quarter of 2016 and a 27% increase from the 2016 low of 1.27% in the third quarter.
The report found that borrower and mortgage eligibility was the leading critical defect category for the first quarter, comprising 23.76% of all reported critical defects. Income and employment followed with 20.79% of all defects, with credit-related defects accounting for 17.82% of all reported critical defects.
The leading defect categories for the quarter continue a trend that began in the fourth quarter of 2016. ARMCO said that while requirements related to the TILA-RESPA Integrated Disclosure rule drove legal, regulatory, and compliance defects to lead in early 2016, recent trends show that the leading defect categories are now usually associated with heavy purchase-driven markets.
ARMCO said that the first quarter saw a significant shift in the balance of purchase and refinance mortgage originations. Purchase transactions made up 68% of the data used in ARMCO’s benchmarking software during the first quarter, a 33% increase compared to 51% in the fourth quarter of 2016.
According to ARMCO, the higher number of participants and the more complex process make purchase transactions more inherently prone to defects compared to refinances. ARMCO added that the critical defect rate for the rest of the year will be influenced by the ratio of purchase to refinance transactions.
“The spike in purchase transactions brought an understandably higher critical defect rate. Whether that rate continues to rise will depend in part on the ratio of purchases to refinances as we move forward,” ARMCO President Phil McCall said.
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The rate for the first quarter is a 7% increase from the fourth quarter of 2016 and a 27% increase from the 2016 low of 1.27% in the third quarter.
The report found that borrower and mortgage eligibility was the leading critical defect category for the first quarter, comprising 23.76% of all reported critical defects. Income and employment followed with 20.79% of all defects, with credit-related defects accounting for 17.82% of all reported critical defects.
The leading defect categories for the quarter continue a trend that began in the fourth quarter of 2016. ARMCO said that while requirements related to the TILA-RESPA Integrated Disclosure rule drove legal, regulatory, and compliance defects to lead in early 2016, recent trends show that the leading defect categories are now usually associated with heavy purchase-driven markets.
ARMCO said that the first quarter saw a significant shift in the balance of purchase and refinance mortgage originations. Purchase transactions made up 68% of the data used in ARMCO’s benchmarking software during the first quarter, a 33% increase compared to 51% in the fourth quarter of 2016.
According to ARMCO, the higher number of participants and the more complex process make purchase transactions more inherently prone to defects compared to refinances. ARMCO added that the critical defect rate for the rest of the year will be influenced by the ratio of purchase to refinance transactions.
“The spike in purchase transactions brought an understandably higher critical defect rate. Whether that rate continues to rise will depend in part on the ratio of purchases to refinances as we move forward,” ARMCO President Phil McCall said.
Related stories:
Mortgage fraud risk spikes year-over-year
While growing pains have largely abated, TRID still causing headaches
