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  Lender critical defect rate falls again
Sep 16, 2021

The downward trend in critical defects continued in Q1 2021, ending the quarter at 2.01% versus the prior quarter's rate of 2.09%, according to ACES Quality Management, a provider of enterprise quality management and control software.

The data comes from the company's quarterly ACES Mortgage QC Trends Report covering the first quarter (Q1) of 2021.

"With Q1 2021 marking a second consecutive quarter of decline in the critical defect rate, the record spike observed in Q2 2020 appears to have been a one-off increase, which is encouraging," said Nick Volpe, executive vice president of ACES. "However, lenders and servicers should still proceed with caution, as declines in gain-on-sale, the conclusion of the eviction moratorium, persistent inflation and a potential default wave as forbearances come to an end all have the potential to trigger industry disruption."

The company did note that a rapid rise in the income/employment category led all defect categories, with several of the core underwriting/qualification categories increasing as well. However, declines in the regulatory compliance and loan documentation categories show that lenders are self-correcting and stabilizing their operations.

"The declines observed in not only the overall critical defect rate, but also in EPDs and the Regulatory Compliance and Loan Documentation defect categories speak to an industry that has made considerable strides to course-correct after the tumultuous year that was 2020," said ACES CEO Trevor Gauthier. "Unfortunately, 2021 may not prove to be any less challenging, which places even greater emphasis on lenders' defect tracking and reporting efforts to remain ahead of the curve and adjust their operations as necessary to stay on track."

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