ACES Report Shows Critical Defect Rate Falls To Annual Low
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 Q4 2025 and the full calendar year (CY) 2025. The report analyzes post-closing quality control data derived from the ACES Quality Management & Control® software.
Key findings from the Q4 and CY 2025 ACES Mortgage QC Industry Trends Report include:
- The overall Q4 2025 critical defect rate fell to 1.38%, a 22.91% decrease from 1.79% in Q3 2025, marking the first quarterly decline after three consecutive quarters of increases.
- CY 2025’s average critical defect rate was 1.50%, essentially flat from CY 2024’s 1.52% (-1.32%).
- Legal/Regulatory/Compliance returned to the top defect category in Q4 2025, rising 30% from 18.97% to 24.66%. This marks the second time it has led all categories since Q4 2024 and its third consecutive quarterly increase.
- Income/Employment fell from the top spot for only the second time since Q4 2024, declining 21% to 21.52%.
- For CY 2025, Borrower/Mortgage Eligibility climbed 291.58% year over year, and Credit rose 166.13%, reflecting a migration toward eligibility-driven defects as borrowers stretched to qualify in a constrained affordability environment.
- Refinance review share nearly doubled year over year in CY 2025, rising from 11.14% to 21.04%, while refinance defect share more than doubled from 15.30% to 32.20%.
- By loan product type, FHA defect share remained elevated relative to review share at 30.86% for CY 2025, and VA defect share rose for the second consecutive quarter in Q4, warranting continued segment-specific QC focus.
“Lenders ended 2025 on a strong note, with Q4 delivering a meaningful drop in the critical defect rate and the full-year average holding essentially flat versus 2024,” said Nick Volpe, executive vice president at ACES Quality Management. “But the year’s defining shift toward eligibility-driven defects as refinance activity returned indicates that disciplined documentation and consistent eligibility decisioning will define quality in 2026.”
Findings for the Q4 and CY 2025 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, 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.
