Critical defects on mortgage applications submitted in the third quarter last year were at the lowest level since the pandemic started, but with the economic turmoil affecting consumers, lenders should not be complacent, Aces Quality Management said.
An 8% decline in origination volume in the period helped the defect rate fall to 1.86%, a drop of 18% compared with the
"Metrics are beginning to trend back to their historic normal levels as volume moderates," Aces Executive Vice President Nick Volpe said in a press release. "With the amount of volatility in macroeconomic factors and rising rates, the decline in the overall critical defect rate is a testament to lenders taking quality management and control seriously."
However, an increase in the share of critical defects related to income and employment was recorded, to 33.33% from 32.08% the prior quarter.
"The numbers continue a multi-quarter trend of increasing share of income/employment defects, and that category remains at an all-time high," Aces said in its commentary. "It also illustrates, we believe, the difficulties that lenders face at the end of a refinance cycle where loans and borrower profiles tend to be more complex and difficult to qualify."
Even though
Other key categories of defects that increased from the prior quarter were assets, up to 16.58% from 10%; and borrower and mortgage eligibility, at 12.3% from 10.83%. Aces uses the Fannie Mae defect taxonomy.
Conversely, the use of
Also, economic conditions have changed vastly in the period since this report was compiled — mortgage rate s
"Lenders and banks need to be cognizant of the economic and geopolitical environments in the coming months and possibly years," Aces CEO Trevor Gauthier said. "As the