The mortgage market was “stable and robust” in the lead up to the coronavirus outbreak in the U.S., according to ACES Quality Management’s mortgage industry trends report released today. The overall critical defect rate of mortgages—which refers to a defect that would result in a loan being uninsurable or ineligible for sale—was 1.56%, matching a low recorded in the third quarter of 2019.
Defects related to income or employment comprised 18.35% of all defects in the first quarter, down from 27.22% in the fourth quarter of 2019. Credit defects accounted for 17.43%, an improvement of 22%. Meanwhile, defects related to loan documentation accounted for 16.51% and defects related to borrower and mortgage eligibility accounted for 12.84%.
The report found that increase in the share of refinances and conventional loans also contributed to the improvement in the overall defect rate. This increase was a result of falling interest rates and strong employment numbers at the beginning of the year, along with steady property appreciation. However, looking ahead, ACES noted that COVID-19-related challenges, including massive job losses, a rapidly changing regulatory environment, increases in payment deferments and defaults will test the mortgage market in the coming months.
