Critical Mortgage File Defects Reach Highest Level in 2020



The defectiveness rate for critical mortgages in 2020 was the highest since Aces Quality Management began tracking this data in 2016. As the provider of audit technology found out, the findings of the loan documentation played a significant role in the increase.

Such issues, which indicate manufacturing errors, were second in the past year after income and employment as sources of critical defects found in post-closure reviews of mortgage files by Aces. Problems with credit filings were found in 16.6% of verified files, up from just under 15% in 2019.

The increase was driven by the difficulties associated with the pandemic and is generally a symptom of manufacturing defects, Ace said.

While the general level of marriage for full 2020 was the highest ever, at 1.97%, down from 2.09% in the fourth quarter, which is actually an improvement from 2.34% in the third quarter. The Aces executive team was quite positive about the annual results, given that, for example, in the fourth quarter of 2019 the critical defect rate was 1.73% and in 2018 it was 1.81%.

Loan disadvantages are a red flag, but not proof of mortgage fraud.

“It would be easy to say that the last two quarters of 2020 have been bleak, but given the pandemic, unemployment rate and critical defects, our fourth quarter results are optimistic, “Aces CEO Trevor Gaultier said in a press release. 2021 and more borrowers are running out of tolerance.”

Mortgage loans have broken records in 2020 and in particular in the last two quarters of the year, which can also contribute to problems in credit files.

According to Fannie Mae, last year the volume of mortgage loans was about $ 4.5 trillion, of which $ 1.35 trillion in the third quarter and 1.34 trillion in the fourth.

The defectiveness rate of loan documents actually decreased from quarter to quarter at the end of 2020 to 14.75% from 18.75%, but it still remained the third largest category of critical deficiencies for the period after income and employment, as well as legal, regulatory requirements. and regulatory compliance. issues, which rose over the period to 21.3% in the fourth quarter from 8.5% in the second quarter.

Aces uses Fannie Mae’s taxonomy of loan defects to categorize its findings.

“With a favorable interest rate environment and an improving economy in the fourth quarter, the number of critical defects decreased,” said Nick Volpe, executive vice president. “Minor reduction in critical defects is the first step in what we hope will be a downward trend.”

The number of critical defects in both the full year and the fourth quarter was disappointing because it was higher than in the past. But that should be understood in the context of what happened last year, he said.

“If you had said back in April 2020 that we would emerge from the pandemic with record volumes and see only a small increase in the number of mortgage defects, despite the fact that unemployment reached record highs and the main parts of the economy were closed for 12-12 years. plus months – I’m sure most in our industry would be happy with that, ”Wolpe said.


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