MBA Premier Member Insights: ACES Mortgage QC Industry Trends
MBA NewsLink recently interviewed MBA Premier Member ACES Quality Management, Denver, about its new white paper, ACES Mortgage QC Industry Trends.
MBA NewsLink: Briefly describe the key insights or findings presented in your white paper.
ACES Quality Management: This report represents an analysis of post-closing quality control (QC) data derived from loan files analyzed by the ACES Quality Management and Control® benchmarking system during the second quarter of 2025. The report incorporates data from prior quarters, where applicable.
MBA NewsLink: What industry challenges or opportunities does your white paper address?
ACES Quality Management: The overall critical defect rate increased to 1.51% in Q2 2025, a modest quarter-over-quarter rise and the second consecutive increase. Despite this uptick, loan quality continued to improve across most categories, with three of the four core underwriting areas showing measurable gains.
The overall increase was primarily driven by higher findings in collateral, eligibility, and regulatory-related categories, which offset progress in other areas.
Underwriting performance strengthened, reflecting more consistent documentation and verification practices. Assets was the only underwriting category to rise, though the increase was limited to calculation and eligibility components.
Outside of underwriting, Appraisal, Borrower/Mortgage Eligibility, Property Eligibility, and Legal/Regulatory/Compliance defects increased, consistent with the shift toward more complex cash-out refinance activity. Loan Documentation and Insurance defects both declined but remained volatile.
By loan purpose, the quality of purchase loans improved even as refinance activity increased. The rise in refinance defects stemmed from the growing share of cash-out transactions, which carry greater complexity in terms of collateral and income analysis. Conventional loan quality improved after two quarters of deterioration, while FHA and VA findings rose modestly alongside expanding review share.
Overall, Q2 2025 results reflect a mortgage industry maintaining strong manufacturing quality amid shifting market conditions. The modest increase in the critical defect rate was driven by changes in loan composition rather than a systemic decline in lender performance.
MBA NewsLink: Who is the primary audience for your white paper?
ACES Quality Management: Mortgage quality control professionals
MBA NewsLink: What actions would you like readers to take after engaging with your white paper?
ACES Quality Management: Q2 2025 marked a period of transition for the mortgage industry, characterized by solid economic growth, modest rate stability, and a shift in loan composition that increased overall complexity. Although the critical defect rate rose slightly for the second consecutive quarter, the underlying data continued to reflect improvement in most areas of loan manufacturing. Three of the four core underwriting categories improved over the prior quarter, underscoring lenders’ sustained focus on documentation accuracy and process consistency.
As noted earlier in this report, modest rate stabilization and expanding homeowner equity spurred a resurgence in refinance activity, particularly in cash-out transactions. These loans carry greater collateral, valuation, and eligibility complexity, contributing to higher findings in those categories and in regulatory reviews. Meanwhile, purchase-loan quality improved despite affordability and insurance cost challenges, reflecting disciplined underwriting and borrower verification practices, even as home prices and ownership costs remained elevated.
Overall, Q2’s results illustrate a mortgage industry that continues to perform well within a complex and evolving market. The increase in the critical defect rate reflects shifts in loan mix rather than a systemic decline in quality, highlighting lenders’ capacity to maintain strong performance amid operational and economic change. With steady employment, moderating inflation, and a measured monetary policy setting the stage for the second half of the year, conditions entering Q3 2025 point to a stable quality environment, with continued attention warranted in collateral, eligibility and compliance-related areas.
(MBA Premier Member White Paper Insights are provided by the Mortgage Bankers Association as a service to MBA Premier Members. Publication does not constitute an endorsement of a particular company, product or service.)
