Navigating the Shifting Sands of Mortgage QC: Key Insights from Q4 2024

The mortgage industry is a dynamic landscape, and staying ahead of the curve in quality control (QC) is more critical than ever. The latest Q4 2024 Mortgage Industry Trends Report from ACES Quality Management offers a comprehensive look at the state of loan quality, revealing both encouraging progress and areas demanding continued vigilance.

A Glimmer of Improvement: Critical Defect Rates Decline

One of the most positive takeaways from the Q4 2024 report is the significant improvement in the overall critical defect rate. The report highlights a 23.18% decrease from Q3 2024, closing the year at 1.16%. This marks one of the lowest quarterly critical defect rates observed, signaling lenders' intensified focus on quality amidst persistent market pressures.

For the full calendar year 2024, the average critical defect rate also saw a positive trend, down 9.52% from 2023. This is a testament to the hard work and dedication of quality control and risk management professionals across the industry.

Unpacking the Trends: What's Driving the Numbers?

While the overall picture is encouraging, a deeper dive into the data reveals some interesting shifts and persistent challenges:

• Income/Employment & Assets Show Improvement: In Q4, we saw notable improvements in the Income/Employment and Assets categories, which have historically been leading defect sources. This suggests a positive impact from enhanced documentation and calculation/analysis processes.

• Legal/Regulatory/Compliance Emerges as a Top Concern: For the first time in over three years, Legal/Regulatory/Compliance became the leading defect category in Q4 2024. While analysis suggests this might be a temporary spike rather than a systemic policy shift, it underscores the constant need to adapt to evolving regulatory landscapes and ensure robust compliance frameworks.

• Eligibility Defects on the Rise: We observed increases in eligibility-related defects across Income/Employment, Assets, and Credit categories. This highlights the importance of thorough pre-funding and post-closing reviews to catch these critical issues early.

• Refinance vs. Purchase: Refinance review share increased in Q4, and while refinance defect share rose modestly, purchase defect share fell. This could be indicative of differing levels of complexity or focus within these loan types.

• FHA Quality Improves: FHA loans showed an improved defect share in Q4, and for the full year 2024, their defect share declined, which is a positive sign for this significant loan segment.

The Road Ahead: Sustained Vigilance and Strategic QC

This report reinforces that while progress is being made, the work of quality control is never truly "done." The dynamic nature of the mortgage market, coupled with evolving regulations and loan products, demands continuous adaptation and robust QC programs.

By partnering with The Work Number® from Equifax, mortgage lenders can significantly enhance their quality control and risk management. Leveraging our deep knowledge of the underwriting process and adherence to industry best practices in loan origination, we provide instant verification of employment and income records. This empowers lenders to streamline workflows, mitigate risk, and ultimately foster greater confidence in loan quality across the dynamic mortgage landscape.