Mortgage Industry Trends

Loan Defects on the Rise as Business Declines

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loan-defeats-up-business-declining-empty-pocketsRecently, I’ve been writing about the challenges lenders face resulting from a shortage of affordable housing.

With consumers having less money available for a down payment, lenders are forced to stretch the credit and income limits to qualify potential home buyers for higher priced homes.

Now, we start to see the flip side. Loan defects, fraud, and misrepresentations once again increased in May’s production. These have now reached their highest levels since 2015. That is definitely not good for anyone.

The First American Loan Defect Index for May reached 83, which is up 2.5% over April and 13.7% over May of 2016. The good news is that for now, it remains below the peak reached in 2013.

Some other notes from the Index:

  • Purchase index for May was 90
  • Purchase index is 9.7% over April, up 11.1% YOY
  • Refinance index came in at 68
  • Refi index is up almost 10% YOY.

 

This indicates that purchase business is a little riskier than the refinance loans. This is something to keep in mind when generating new business.

It’s understandable in a competitive market that lenders will be more creative in garnering and originating new business. Low down payment loan programs, with eased credit standards, allow them more flexibility when approving loans. But, they need to be careful not to push the envelope too far.

The pressure is on. Everyone is looking for more business, including Realtors and builders. Lenders need to take complete accurate applications and vet each applicant and property, very carefully.  Quality and compliance never go out of style.

Review all new loans to quickly identify and correct defects and potential problems. Pre and post-close QC reviews will help, but everyone needs to get into the act.

Don’t allow risky loans, with increased defects, (or worse) fraud and misrepresentation, suck the profits out of your company. A bad loan…is a bad loan, regardless of price.

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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