Mortgage Critical Defects Increase As Refi Market Fades


iLeads Mortgage Market Minute

Mortgage Critical defects climb to a rate of 2.27% in Q2 2021, up from 2.01% in Q1 2021. We hope you enjoyed last week’s edition where we talked about Cash-Out Refis Are In High Demand As Equity Levels Skyrocket. This week we’re bringing you:


OCC issues final rule to axe 2020 CRA version*

In May, the OCC announced its intention to rescind the 2020 rule


The Office of the Comptroller of the Currency issued a final rule Tuesday to rescind the June 2020 proposed Community Reinvestment Act (CRA) rule, setting the stage for more reform.

In a statement, the agency said the final rule would “facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote consistency for all insured depository institutions.”

Fair housing advocates said the 2020 rule would have gutted the federal anti-redlining statute, while mortgage lenders called the data reporting requirements onerous. In May, the OCC announced its intention to rescind the 2020 rule.

The federal banking agencies have in recent years disagreed on how to modernize the CRA, a 1977 anti-redlining statute. In 2019, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed its own revised CRA rule, under the leadership of then-Comptroller Joseph Otting, but without the support of the Fed.

Lael Brainard, who President Joe Biden recently named vice chair of the Federal Reserve Board, at the time criticized the rule, saying it was “more important to get the reforms done right than to do them quickly.”

How to reform the CRA centers around the law’s treatment of race. While the banking statute was meant to right the wrongs of federal redlining, its language was race neutral. Banks almost always pass their CRA mortgage exams, affordable housing advocates have argued. Yet bank lending to minority borrowers lags even current levels of minority homeownership, recent research from the Urban Institute found.

Read more in-depth here.


Data, AI, Encompass, Workflow, Lead Conversion Tools; Credit Tightening; Events and Webinars; LO Comp*


No CEO wants to hear from their secretary, “The CFPB is holding for you on Line Two.” Lenders who have different prices in the same MSA? Don’t even try. Got a clever idea about net branches that aren’t net branches? Give it up. A point bank, labeled something else? Let me know how it goes with your state regulator out to make a name for themselves. Forbearance servicing is attracting attention, but loan officer pay is an ongoing “issue” and the current STRATMOR blog is, “The Personal Touch” about MLO compensation, different basis points for different channels, and shifting business models. Last Friday (12/10) I noted about a dust-up between the CFPB Director and the FDIC over a disputed vote of the FDIC Board.

This issue seems to have struck a nerve for some observers such as the Wall Street Journal’s opinion page No Rules for Progressive Radicals – WSJ. Attorney Brian Levy also weighed in the significance of this (not so funny) lack of comity in his Mortgage Musings. Switching gears entirely, yesterday I posted a link to charities of note in the tornado-torn areas. I know that there are hundreds of charities, but thank you to vet Larry C. from Texas who reminded me about the Marine Corp Toys For Tots! available here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology, and other services in the mortgage industry and in banking.)

TPO, Lender, and Broker Products and Services

This holiday season, Surefire CRM, offered by Black Knight, is making it easy to get your hands on Broker Bridge, a hot new tool in the Surefire platform for wholesale lenders that promotes broker engagement by providing them with the tools they need to close more loans. Chock full of features like award-winning marketing content, CRM access, visibility into loan status and product alerts, Broker Bridge offers brokers and wholesale lenders an advantage to achieving 2022 #goals. See a demo of Broker Bridge live tomorrow December 15, at Digital Mortgage at 1 pm ET or schedule a private demo.

Read more in-depth here.


Critical defects increase as refi market fades*

Critical defects climb to a rate of 2.27% in Q2 2021, up from 2.01% in Q1 2021


mortgage critical defects

Mortgage lenders generated more defective loans in the second quarter, reflecting the transition from a refinance to a purchase market, according to ACES Quality Management’s latest critical defect report.

The critical defect rate climbed to 2.27% in the second quarter of 2021, ending the trend of improvement in the previous two quarters. In the most recent quarter, it was 2.01%, according to the report published on Tuesday. For the coming months, the expectation is that the rate may be volatile.

The report is based on post-closing quality control data from around 100,000 unique records. Defects are categorized using the Fannie Mae loan defect taxonomy.

Nick Volpe, executive vice president of ACES, said that as the market continues to transition to primarily purchase transactions, lenders should expect continued volatility over the next few quarters and, therefore, keep a close watch on defects for the foreseeable future.

“Given the uncertainty of 2022’s market and increasing regulatory pressures, lenders must ensure their existing QC and compliance programs are leveraging automation to maximize loan quality and mitigate risk.”

Volpe mentioned volume stabilizations and declining unemployment numbers as silver linings in the second quarter findings. However, he cited the effect of inflation on interest rates as potentially dampening the outlook.

The defect category that needs some attention from mortgage lenders is income/employment, which made up 32% of all defects, the highest share since ACES began tracking defects by category. In the previous quarter, it was 31.4%.

Read more in-depth here.


Finding highly affordable leads to keep sales coming in

At iLeads, we have many great solutions for mortgage LO’s at a low cost. If you’d like to see how we can help you bring in consistent sales for a great price, give us a call at (877) 245-3237!

We’re free and are taking phone-calls from 7AM to 5PM PST, Monday through Friday.

You can also schedule a call here.


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