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Like the robot warning Will Robinson of danger on the old TV series “Lost in Space”, First American Financial Corp. is warning the industry that loan application defects are on the rise. The FAFC Loan Application Defect Index indicates defects rose in April for the fifth straight month. Not a good indicator of loan quality.
According to the index
- Incidents of defects, fraud, and misrepresentations rose 2.5% in April
- The defect index increased 8% from a year ago
- Defects on refi’s increased 4.8% over March and 3.1% YOY.
- For purchases, the index increased 2.3% MOM and 7.2% YOY.
This is definitely not a good trend. The increases may be the result of lenders trying to originate riskier loans and some of the easing of industry credit standards, but that’s no excuse for poor quality.
This further underscores the need for strong quality and compliance checkpoints throughout the loan origination process, with a robust pre and post-close quality control program.
We’ve come a long way toward better loan quality and performance over the last 10 years. Now is not the time to sacrifice what we learned, and gained, for the sake a few risky loans.
In most cases, these loans can still be done the right way, without sacrificing loan quality. It all depends on the commitment to quality and attention to detail in taking a complete, accurate application with the technology and trained staff to ensure the correct loan processing and approval.
There are no shortcuts to loan quality and compliance. You either do it right or you pay the price for defects. That price, in some cases, may be too high to bear.
To borrower a tagline, keep “Quality as Job 1”.
Editor’s Note: The Robot (a B-9 Class M-3 General Utility Non-Theorizing Environmental Control Robot) was a character in the television series Lost in Space. Known and addressed simply as “Robot”, his full designation was only occasionally mentioned on the show.
