Decrease in critical defect rate – DSNews



The critical defect rate in Q1 2021 tended to decline from the high in Q3 2020, ending at 2.01%. This is a slight decrease from 2.09% last quarter and 14% lower than the peak of 2.34% in the third quarter of 2020. ACES Quality Management (ACES), a provider of management software for the healthcare industry. financial services, reports this and more in its quarterly ACES. Mortgage Quality Control Trends Report. The latest report, which provides nationwide loan quality conclusions based on data from proprietary ACES quality management and control software, covers the first quarter of this year.

“While the decline was modest from last quarter, we like to see the overall trend decline,” noted the report’s authors. “Given the continued improvement in the macroeconomic environment, we remain confident that default rates can return to the levels below 2% that we have seen throughout much of 2019 and 2020.”

The authors highlighted the following in the report:

The downward trend in critical defaults continued in the first quarter of 2021, ending the quarter at 2.01% compared to the 2.09% rate in the previous quarter.

A rapid increase in the “income / employment” category led all categories of defaults, with several of the major “underwriting / qualifying” categories also increasing.

Declines in the “regulatory compliance” and “loan documentation” categories show that lenders are correcting themselves and stabilizing their operations.

The share of refinancing revisions continues to be high and default performance has improved.

Conventional loans dominated while default performance declined.

Prepayment defaults are falling below pre-pandemic levels, an encouraging sign that the worst is behind us, although we remain cautious about loans coming out of forbearance status.

ACES Executive Vice President Nick Volpe said that with the first quarter of 2021 marking a second consecutive quarter of declining critical defect rate, the record peak seen in the second quarter of 2020 “appears to have been a one-time increase, which is encouraging.

“However, lenders and service providers should always proceed with caution, as falling sales gains, the end of the moratorium on evictions, persistent inflation, and a wave of potential defaults at the end of abstentions can all trigger an industry disruption, “he added.

The findings of the ACES First Quarter 2021 Mortgage Quality Control Industry Trends report are based on post-close quality control data derived from the Management and Control Benchmarking System. ACES quality and incorporate data from previous quarters and / or calendar years, where applicable. All reviews and default data assessed for the report were based on audits of loans selected by lenders for a full file review.

ACES CEO Trevor Gauthier said the report reflects an industry struggling to get back on track.

“The declines seen not only in the overall critical defect rate, but also in EPDs and categories of regulatory compliance and loan documentation defaults are testament to an industry that has made significant strides in correcting the course after the tumultuous year that was 2020, ”said Gauthier. . Unfortunately, 2021 might not prove to be any less difficult, putting even more emphasis on lender default tracking and reporting efforts to stay ahead and adjust their operations as necessary to stay on track. “

The ACES Q1 2020 report is available on the ACES website. Based on Fannie Mae’s Taxonomy of Loan Defaults.


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