ACES Quality Management: Critical Defect Rate Continues to Decline in Q3

(Image courtesy of ACES Quality Management)

ACES Quality Management, Denver, found the overall critical defect rate continued to fall in Q3 2023, by 2.91% to 1.67%.

This was the fourth consecutive quarter of decline.

“One area of the mortgage lending market is strong–and that is defect performance. Despite rate and volume concerns, critical defect rates are down for the fourth straight quarter,” said Nick Volpe, Executive Vice President of ACES Quality Management

Defects in the Liabilities category increased, but Credit, Assets and Income/Employment defects all fell.

However, Income/Employment continues to lead all defect categories. Within the category, issues were largely in the Income Calculation subcategory, at 55%. Income Documentation–a larger issue in past quarters–fell to 27% of the share.

Loan Documentation and Borrower and Mortgage Eligibility rose.

Appraisal defects also increased in Q3 after declining in Q2.

The refinance review share fell to 13.2% of all loans reviewed amid the Q3 rate environment. And, the purchase review share increased to 86.8%.

FHA and VA loan production review share increased by 10.29% and 13.94% respectively. However, FHA defects increased by just 3.47% and VA defects by 3.57%.

Reviews for conventional loans fell by 5.81%, and their defect share fell by 3.41%.

Reviews for USDA loans fell by 13.11%, but the category’s defect share increased by 3.57%.