Q2 Critical Defect Rate up 6%

ACES Quality Management has released the findings of its latest Industry Trends Report for the second quarter of 2022 which found that the overall critical defect rate increased 6% compared to the first quarter of the year, and crossed the 2% threshold for the third time in report history. 

The most common reasons cited for borrowers that critically fell behind include loss of income or loss of employment. In addition, loan documentation defects increased significantly in the second quarter with closing documentation errors comprising the vast majority of other defects. 

The market officially is in “purchase” territory as the ratio of purchase to refinances increased due to increases to the nominal interest rate by the Federal Reserve. 

“The geopolitical and macroeconomic events surrounding Q2 2022 are most certainly the driving factors behind the increase in the overall critical defect rate past the 2% threshold. While the Income/Employment category improved tremendously this quarter, significant defect increases in the Loan Documentation, VA and USDA categories are cause for concern,” said ACES EVP Nick Volpe. 

“With interest rates skyrocketing and severe declines in volume and profitability, Q2 2022 was the perfect storm for the mortgage industry. The market disruption combined with increased competition certainly created ample opportunity for loan defects, hence the increase in Q2r’s overall critical defect rate,” said ACES CEO Trevor Gauthier. “The takeaway for lenders moving forward is to double down on quality control and risk mitigation to protect the volume they can capture and ensure buyback requests don’t diminish profits.”

Click here to view the report in its entirety.