Spike in quarterly defect rate reflects increased unemployment numbers and operational challenges triggered by COVID-19
DENVER, Colo. /CitizenWire/ — ACES Quality Management(TM) (ACES), the leading provider of enterprise quality management and control software for the financial services industry, announced the release of its quarterly ACES Mortgage QC Trends Report covering the second quarter (Q2) of 2020. The latest report provides an analysis of post-closing quality control data derived from ACES Quality Management & Control Software(TM).
Notable findings from the Q2 2020 report include:
* The overall critical defect rate of 1.88% is the highest quarterly rate since 2018.
* Defect increase was driven primarily by a 64% increase in the Income/Employment category.
* While defects were down in the overall majority of categories, three of the four key borrower qualification categories saw significant defect rate increases compared to Q1 2020.
* The share of conventional and refinance loans continues to skyrocket.
* Early Payment Defaults (EPD) increased 197% through Sept 2020 compared to last year.
“While evidence of COVID-19’s impact on loan quality was present in the Q1 data, Q2 is where ‘The COVID Effect’ becomes truly apparent, resulting in the highest critical defect rate observed since Q4 2018,” said ACES Executive Vice President Nick Volpe. “One of the biggest drivers of this increase was the rise in Income/Employment-related defects – a wholly unsurprising outcome given the challenges nearly all employers faced in transitioning to a remote working environment.”
“In many respects, the mortgage industry and the world at large remain in a “wait-and-see” mode. As such, we expect higher than normal volatility in the critical defect rate for the remaining quarters of 2020 and into 2021, though loan volumes should remain high next year thanks to the ongoing low-interest-rate environment,” Volpe added.
Findings for the Q2 2020 ACES Mortgage QC Industry Trends Report are based on post-closing quality control data from over 90,000 unique loans and are categorized using the Fannie Mae loan defect taxonomy. All reviews and defect data evaluated for the report were based on loan audits selected by lenders for full file reviews.
“We are still seeing a tremendous increase overall in EPDs as compared to 2019, making it too early to predict when EPDs will peak. Any continued rise is likely to exacerbate long-term default and loss rates, signaling that lenders must remain vigilant of the risks this might pose to their organizations,” said ACES CEO Trevor Gauthier. “By increasing visibility into loan quality and introducing functionality specifically designed to accommodate the COVID-related changes to compliance regulations, ACES arms lenders with powerful quality control technology needed to manage that risk as they approach the great unknowns of the year ahead.”
ACES executives will analyze the findings from the Q2 2020 ACES Mortgage QC Industry Trends Report and offer insights into what lenders can expect in future quarters during a webinar titled, “Insights into Mortgage QC Trends – First Signs of the COVID Effect,” as part of its on-going QC NOW Web Series. To sign up for January 14, 2021 webinar, click here.
Mortgage QC Industry Trends Reports are available for download, free of charge, at https://www.acesquality.com/resources/reports.
About ACES Quality Management
ACES Quality Management, formerly known as ACES Risk Management (ARMCO), is the leading provider of enterprise quality management and control software for the financial services industry. The nation’s most prominent lenders, servicers and financial institutions rely on ACES Quality Management & Control Software(TM) to improve audit throughput and quality while controlling costs, including:
* 3 of the top 5 and more than 50% of the top 50 independent mortgage lenders;
* 7 of the top 10 loan servicers;
* 11 of the top 30 banks; and
* 1 of the top 3 credit unions in the USA.
Unlike other quality control platforms, only ACES delivers Flexible Audit Technology, which gives independent mortgage lenders and financial institutions the ability to easily manage and customize ACES to meet their business needs without having to rely on IT or other outside resources. Using a customer-centric approach, ACES clients get responsive support and access to our experts to maximize their investment. For more information, visit www.acesquality.com or call 1-800-858-1598.
Learn More: https://www.acesquality.com/
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