• Greggory B. Oberg, Esq.

Defects Continue Their Spike

Mortgage Industry Insight: One of the great things about SCA is the range of issues we get to see, and the wealth of knowledge we get to tap into while working with dozens of clients on a monthly basis. Today, we'll share some important information about Quality Control.

By Bill Dolan:

Recent findings based on post-closing quality control analytics produced by SCA identified defects based on Fannie Mae’s defect classifications. All defect data evaluated was based on recent loan audits selected by our clients for full file reviews.

SCA’s findings indicate that the leading critical defect categories continue to be:

  1. Loan Package Documentation

  2. Credit

  3. Income/Employment

A critical defect is defined as a defect that would result in a loan being uninsurable or ineligible for sale.

It should be noted that the critical defect rate reached 1.89%, its second highest level since the TRID rule went into effect back in October, 2015, increasing roughly 11% from the prior quarter’s rate of 1.71%.

Loan package documentation spiked 23% over the prior quarter making this the fourth consecutive quarter to see a significant increase in this category.

Defects attributed to income/employment dropped almost in half from 22.73% in the previous quarter to 12.50%.

FHA loans accounted for a disproportionate number of critical defects, comprising 28.20% of originated loans in the benchmark but accounting for 49.55% of loans with critical defects.

The spike in percentage of critical defects clearly indicates that while the use of analytics is always important, they are perhaps even more important in contracting markets. Lenders who refrain from purchasing technology in slower markets can expect a spike in costs associated with delays, fees, fines and buybacks. If lenders want to secure their profits and protect their reputations, they need to utilize auditing technologies that are flexible enough to allow for quick configuration and produce robust analytics.

SCA offers the Quality Control Pre-Funding an Post-Closing technology necessary to allow our clients to quickly adopt and prevent defects regardless of loan type, investor and agency guidelines or staff weaknesses.

As the leading provider of Quality Control software analytics in New England, SCA has set the bar with its state-of-the-art technology in handling credit appraisal, third party originated and correspondent loan reviews as well.

Using SCA’s customized technology, banks, credit unions and non-depositories seamlessly upload individual loan data from their Loan Operating System (LOS) to our secure QC file repository, thus improving operational efficiencies, ensuring mortgage compliance, maintaining data security and reducing expenses.

Spillane Consulting Associates has served the residential mortgage lending business since 1991. We have specialized in mortgage banking consulting services and provided quality control reviews, risk management and process consulting and employee training to credit unions, community banks and non-depository institutions. We are a thought leader on the strategic growth of residential mortgage lending. You can learn more by visiting our website, or scheduling a meeting with me or one of my colleagues.

SCA Compliance Hotline: Need a question answered quick?




(781) 356-2772

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