ACES: Critical Defect Rate Decreased Again in Q4 2023

(Image courtesy of ACES Quality Management)

ACES Quality Management, Denver, released its Mortgage QC Industry Trends report for the fourth quarter of 2023, finding that the critical defect rate decreased to 1.53%.

That’s the fifth straight quarter of declines, and down 8.38% from the previous quarter. It’s also one of the lowest rates that ACES has recorded since it began releasing the report.

For all of 2023, the overall critical defect rate averaged 1.68%, down 19.18% year-over-year from 2022.

“Building on the improvements from late 2022, lenders improved loan quality in both Q4 2023 and for the year overall. Persistent adversity in the form of interest rates and affordability challenges only emphasizes the need to remain vigilant and protect the integrity of existing loan production,” said Nick Volpe, Executive Vice President of ACES Quality Management.

Breaking it down by category for the quarter, credit and liabilities improved, but defects increased for assets and income/employment.

Income/employment was the leading category of defects reported in the fourth quarter, with 36.91% of defect share. Assets (18.12%) and borrower and mortgage eligibility (14.09%) rounded out the top three.

For the full year, income/employment and assets were the top two most-cited categories, followed by loan documentation.

Under the assets category, there was a significant increase in calculation/analysis-related issues both in the fourth quarter and full year.

Purchase review share fell by 1.34% in the fourth quarter from the third quarter; refinance share increased by 8.79% over that period. In terms of defects, purchase share increased by 6.28% and refinance share decreased by 36.2%.

FHA defect share increased by 1.85% from Q3, USDA defect share was up by 8.62% and VA share was up by 8.48%. Conventional loans’ defect share decreased by 3.14%.