ARMCO Notes ‘Significant Shift’ in Critical Defects Distribution
ACES Risk Management, Pompano Beach, Fla., released its quarterly Mortgage QC Trends Report, noting distribution of critical defects has “shifted significantly” from 2016 to 2017 as the housing market moves from refinances to purchases.
ARMCO President Phil McCall noted in 2016, categories containing the majority of critical defects reflected the industry’s reaction to the TILA/RESPA Integrated Disclosure rule, which had been implemented at the end of 2015. “In 2017, we see a shift away from those categories, toward the types of defects that align with the industry’s move to a purchase-driven market,” he said.
McCall said in 2017, the majority of critical defects centered around issues associated with core underwriting and eligibility issues, “which is reflective of the deeper complexity of purchase transactions, as compared to refinances.”
Other report findings:
–The Q4 2017 critical defect rate increased slightly, from 1.65% to 1.68%;
–The percentage of purchase transactions declined for the second consecutive quarter; and
–Calendar year 2017 critical defect rate increased by 7 percent.
The report uses nationwide post-closing quality control loan data from over 90,000 unique loans selected for random full-file reviews, as was captured by the company’s ACES Analytics benchmarking software. Defects listed in the report are categorized using Fannie Mae loan defect taxonomy. The report is available at https://www.armco.us/knowledge/mortgage-qc-industry-report-2017-q4.
The report said leading critical defect categories for Q4 2017 were (1) Income and Employment, (2) Legal / Regulatory/Compliance and (3) Assets. Purchase transactions continued to outpace refinances in Q4, comprising 55.19% of all transactions reviewed.
Purchase transactions also dominated calendar year 2017, comprising 64.14% of all loans reviewed. Refinance transactions accounted for the remaining 35.86%. The top two leading critical defect categories for CY 2017 differed from Q4 2017. The top defect category was Borrower and Mortgage Eligibility, followed by Credit. The third highest defect category, Income/Employment, was also one of the top three in Q4 2017.
