ARMCO: TRID Defects Down Slightly


ACES Risk Management, Pompano Beach, Fla., said defects in loans monitored under the TILA/RESPA Integrated Disclosure rule fell for the first time in nearly a year.

The ARMCO Mortgage QC Industry Trends report ( said the overall industry critical defect rate dropped to 1.63 percent in the second quarter, ending an upward trend spanning the previous three quarters (and peaking in the first quarter).

Defects in the Legal/Regulatory/Compliance category also waned in the second quarter after peaking in the first quarter, comprising 34 percent of all defects reported and marking the first decline in nine months. However, this category still represents the largest reported defect category.

“While TRID-related defects are still driving the majority of Legal/Regulatory/Compliance defects, we’re seeing a decline in defects in this category as a result of corrective action planning lenders undertook through the first six months of 2016,” said Phil McCall, COO with ARMCO. “As lenders determine the most effective strategies for addressing TRID-related defects, we expect to see this category decline further.”

The report said Loan Package Documentation defects increased slightly in the second quarter, accounting for 26.7 percent of reported defects versus 26.4 percent in the first quarter. Income/Employment leads this group as the third most frequently reported defect category in the second quarter at 9.8 percent, followed by Borrower and Mortgage Eligibility at 8.9 percent and Assets at 6.8 percent.

“Given the magnitude of compliance-related defects lenders were facing in Q1, it’s not surprising to see upticks in other areas,” said Avi Naider, CEO for ARMCO. “Now that lenders have begun to get a handle on their TRID-related defects, they should have more capacity to address those credit-related defects. Thus, we should see those categories normalize in Q3.”

The ACES Analytics benchmarking dataset includes post-closing quality control data from more than 60 lenders, comprising more than 50,000 unique loans. Defects are categorized using the Fannie Mae loan defect taxonomy.

This marked the second report this week noting decreases in loan defects. On Tuesday, First American Financial Corp., Santa Ana, Calif., said its monthly Loan Application Defect Index decreased by 1.4 percent in October from September. From a year ago, the Defect Index decreased by 13.9 percent and is now 33.3 percent below its peak in October 2013.