ACES Quality Management has released its quarterly “ACES Mortgage QC Industry Trends Report,” covering the third quarter of 2024, an analysis of a post-closing quality control data derived from ACES Quality Management & Control software.
According to the report, as weather-related natural disasters increase in frequency and severity, home insurers have responded to the increased risk by dramatically increasing premiums or simply ceasing to issue new policies in heavily impacted regions. In 2023, an “unprecedented number of billion-dollar disasters—28 in total—struck the U.S.,” resulting in “soaring home insurance premiums,” which caused “major disruptions for mortgage lenders with policy premiums increasing almost 9%,” according to digital insurance agency Matic.
Notable findings from the Q3 2024 report include:
- The overall critical defect rate declined from Q2 to Q3 by nearly 17%, ending the quarter at 1.51%.
- Income/Employment was again the leading category of defects at 25%, followed by Assets at 16.67%. Credit and Loan Documentation tied for the third most defects at 12.12% each.
- Insurance defects increased more than four-fold from a nominal 0.65% in Q2 to 3.03% in Q3, demonstrating a volatile pattern since Q1 when the share stood at 8%.
- Mirroring the origination environment in Q3, lenders increased their reviews of refinances while defect share declined.
- Purchase defect share increased despite a decrease in purchase reviews.
- Conventional review share increased slightly in Q3, while FHA, USA and VA loan reviews decreased.
- Defects declined significantly for conventional and USDA loans this quarter, while FHA defect share increased by 25%.
- VA defect share increased significantly in Q3, though primarily driven by a temporary phenomenon.
“The drop in the overall critical defect rate this quarter is a welcome shift, but the underlying trends tell a more complex story. The sharp rise in insurance defects, combined with fluctuations in key underwriting categories, reinforces the need for lenders to stay agile in their quality control efforts,” said Nick Volpe, EVP of ACES Quality Management. “As market conditions evolve, leveraging technology and data-driven insights will be critical to maintaining loan integrity and mitigating future risk.”
According to the report, while refinances saw improved loan quality, purchase transactions—comprising nearly 90% of reviews—continued to experience elevated defect rates. VA loan defects spiked in Q3, though this appears to be a temporary anomaly. As the industry navigates fluctuating interest rates and evolving risk factors, lenders should leverage data-driven insights and proactive QC measures to maintain loan quality and mitigate future challenges.
Findings for the Q3 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.
Click here for more on the Q3 ACES Mortgage QC Industry Trends Report.
