ACES Q2 2024 Mortgage QC Trends Report Reveals Second Consecutive Increase In Critical Defect Rate
ACES Quality Management® (ACES), a provider of enterprise quality management and control software for the financial services industry, released its quarterly ACES Mortgage QC Industry Trends Report covering the second quarter (Q2) of 2024. The latest report analyzes post-closing quality control data derived from ACES Quality Management & Control® software. ACES has altered the timing of this report to better reflect Fannie Mae’s accelerated timeline for post-closing quality control reviews.
Notable findings from the Q2 2024 report include the following:
- The overall critical defect rate increased 14.56% to 1.81%, marking the second consecutive quarter of growth.
- Income/Employment remains the leading category of defects at 37.01%, followed by Assets at 14.29% and Credit at 9.79%.
- Defects increased in all four major underwriting categories, with Income/Employment defects rising the most quarter-over-quarter.
- Appraisal defects saw the most significant quarter-over-quarter growth across all categories, increasing by 98.33%.
- Insurance defects reversed course from Q1 2024, declining 91.99%.
- Lenders continued to prioritize purchase reviews over refinances, with defect share rising 2.71% for purchase transactions and declining 11.66% for refinances.
- Conventional and FHA review shares declined slightly this quarter. While VA review share increased somewhat, lenders significantly increased their reviews of USDA loans in Q2.
- FHA and VA loan performance improved tremendously over Q1, declining 35.26% and 56.57%, respectively. Conventional defect share increased by 13.59%, but the largest area of concern this quarter is USDA loan defects, which increased by 370.9%.
“This quarter’s rise in critical defects signals that lenders need to double down on quality control efforts, especially as volumes grow,” warned Nick Volpe, EVP of ACES Quality Management. “While the industry’s resilience is evident, the increased scrutiny of income and other key underwriting areas reminds us of the complexities in today’s lending landscape. Proactive adoption of digital tools is key to maintaining high standards and navigating an environment where even minor lapses can impact long-term performance.”
Findings for the Q2 ACES Mortgage QC Industry Trends Report are based on post-closing quality control data derived from the ACES Quality Management and Control® benchmarking system and incorporate data from prior quarters and/or calendar years, where applicable. All reviews and defect data evaluated for the report were based on loan audits selected by lenders for full file reviews.
The Place for Lending Visionaries and Thought Leaders. We take you beyond the latest news and trends to help you grow your lending business.
