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Mortgage lending can be tricky; even small mistakes can create big problems. A miscalculated escrow payment or missing paperwork might not seem like a big deal, but these issues can lead to compliance risks, unhappy borrowers, and higher costs. To help lenders tackle these challenges, LoanLogics analyzed common loan defects from our Quality Control production group over the past year.
Our 12-month Rolling Defect Report, based on post-close projects from September to November 2024, highlights lenders’ most frequent problems and offers practical solutions to fix them. Let’s break it down.
What Are the Common Loan Defects?
After reviewing loan files, LoanLogics found several common issues that can impact loan quality and compliance.
1. Escrow Payment Errors: Mistakes in escrow payment calculations were a big problem. Some loans miss fractions of a cent, which doesn’t seem like much but can make borrowers lose trust and create compliance issues. The “Rolling 3 Months Defect Trends by Severity” graph from our report shows how often these errors happen and how they affect loan quality.
2. Debt-to-Income (DTI) Issues: Another major trend was borrowers’ DTI ratios exceeding the allowed limits. This happens when the borrower’s income and debts that were used to qualify are not correctly calculated and documented as required by the GSE’s guidelines.
3. Missing Documents and Wrong Fees: We also found loans with missing paperwork, like CAIVRS numbers and borrower tax transcripts, or loans with fees that shouldn’t have been charged. These issues add risks and could lead to fines for not following the guidelines.
How LoanLogics Can Help Fix These Problems
LoanLogics doesn’t just identify problems—we provide solutions. Here’s how we help lenders improve:
1. Use Technology to Catch and Fix Errors: Our LoanHD® Loan Quality Management System helps find and fix issues quickly. It:
- Spots escrow payment mistakes.
- Make sure all required documents are included.
- Check that DTI ratios meet the guidelines.
2. Train Lender Teams: We know that training makes a big difference. One lender worked with LoanLogics to train their staff on common issues, like DTI problems. After training, they saw fewer mistakes and smoother loan processes.
3. Perform Regular Loan Audits: Checking loans regularly is a great way to catch problems early. One client who did monthly audits with our help reduced their defects by 20% in just six months.
Take the Next Step
The 12-Month Rolling Defect Report shows the biggest challenges in lending today and how to solve them. Fixing these problems early means fewer risks, lower costs, and happier borrowers.
Want to learn more? Contact our team to find out how LoanLogics can help you improve loan quality and reduce defects. Visit Our Contact Page to get started.
FAQs About Loan Defects
Q: What are the most common loan defects in 2024? A: Mistakes include escrow payment errors, high DTI ratios, missing documents like tax transcripts, and fees that aren’t allowed.
Q: How can technology help reduce loan defects? A: Technology, like LoanLogics’ LoanHD® Loan Quality Management System, finds errors, automates checks, and helps meet compliance rules.
Q: What is a post-close audit? A: A post-close audit reviews loans after they close to find and fix mistakes. It’s a proactive way to improve loan quality and avoid compliance issues.
