Mortgage delinquency rate improves in 2Q
While mortgage applications submitted during the first quarter had fewer critical defects compared to the previous quarter and year, employment and income verification issues remain an issue, according to Aces Quality Management.
The critical default rate in the first quarter was 1.93%, down 2 basis points from the 1.95% of the fourth quarter and 8 basis points below 2.01% in the first quarter 2021.
Critical defaults are an indicator, but not a definitive sign, of mortgage fraud.
Ironically, fewer defaults have been a benefit of lower mortgage application activity resulting from higher interest rates. But at the same time, as lenders seek to Boost originations with promotionsit exacerbates other problems, including income and employment.
“Lenders are finding this area difficult to rectify, and with staff changes and new products coming online, it’s more important than ever that quality control managers get granular results and feedback to their production group” , Aces Executive Vice President Nick Volpe said in a press release. “Furthermore, as lenders expand the credit box to win the battle for volume, they must be careful not to stretch too far and further aggravate defaults in this category.”
Aces uses Fannie Mae’s Mortgage Default Taxonomy to categorize its findings from post-closing reviews.
In the first quarter, income and employment issues accounted for 34.27% of all defaults, compared to 26.63% in the fourth quarter and 31.44% a year ago.
Additionally, of the three other categories that Aces considers “core,” asset-related defaults was the only one whose share declined quarter over quarter, from 16.08% to 11.89%. .
Credit increased from 9.05% to 11.89% over the same period, while defaults attributed to liabilities increased from 10.05% to 12.59%.
But even with the increase in those three main categories, it wasn’t all “pessimistic” about the overall picture of critical defects, Volpe said.
“Of the top 11 Aces loan default categories, five showed considerable improvement over last quarter, and none more so than the documentation category, which fell 37%, from 14.57% to 9, 09,” he said.
Separately, one out of 131 mortgage applications, or 0.76%, submitted in the second quarter had indicators of mortgage fraud, according to a CoreLogic report.
This compares to one in 120 applications, or 0.83%, submitted one year before.
The CoreLogic Mortgage Application Fraud Risk Index was lower at the end of the second quarter compared to a year earlier. However, part of the decline was attributed to CoreLogic’s recalibration of its ratings model in the first quarter.
As purchase loans now predominate in the market, income and property fraud risks posted the largest year-over-year increases in the second quarter, up 27.3 % and 22.6% respectively.
“The risk of income fraud remains a major concern for lenders, but there is a growing focus on property value risk as house prices slow growth and homes take longer to sell. sell,” Bridget Berg, director of CoreLogic, Industry & Fraud Solutions, said in a press release.
Identity fraud risk increased 4.7% year-over-year, while transactional fraud risk increased 1.6% and housing fraud the risk only increased by 0.8%. In contrast, the risk of fraud related to undisclosed real estate debt decreased by 12%.