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STUDY: TRID-RELATED DEFECTS DOMINATED
LENDERS’ QC ISSUES IN 2016
ARMCO’s Chief Operating Officer Phil McCall discusses findings from the company’s most
recent QC Trends report, which covers Q4 2016 and calendar year 2016.
Q: What would you say is the most significant
findings from ARMCO’s 2016 QC trends report?
TRID had a major impact on lenders. In 2016, over 68% of
all loan defects were due to legal, regulatory or compliance
issues and/or loan package documentation. Legal, regulatory
and compliance defects made up almost 40% of all reported
defects, and the leading issues were all related to TRID. This
was by far the most impacted category for lenders.
Q: Does the 2016 TRID data indicate what may be in
store for lenders in 2017?
Yes, but what’s in store depends on how much lenders learn
TRID was implemented on October 3, 2015. It took until early
2016 before the impact surfaced in the post-origination world.
Looking at 2016 quarter by quarter, a pattern suggests lenders
are learning about TRID via a “baptism-by-fire” approach.
As 2016 progressed, they learned more: which TRID defects
could make a loan non-salable and which were relatively
minor and curable. Their QC results reflect that.
If lenders implement appropriate corrective actions, TRID
probably won’t present nearly the severity of events that
unfolded in 2016. If they don’t, they will probably repeat the
My best advice for lenders is to mine their QC data and make
corrections from there. Plot your course based on where
you are and where you’ve been. Of course, mining your data
will be a lot easier if they’re using a system like ACES Audit
Q: What predictions can you make for 2017?
I hate to make this prediction, but we’ve got all the
ingredients to foster an increase in mortgage fraud.
We have already felt the initial results of increasing interest
rates, and the overall reduction in refinance transactions. With
fewer transactions, there’s a battle to close every loan. That
desperation can lead some to cross that line and engage in
fraud to close a loan.
Purchase transactions are generally more complex than refi’s.
They involve more participants, each of whom is looking to
gain financially from closing the loan. The more participants,
the greater the risk of one bad apple.
We are also seeing some definite signs of credit standards
loosen. I hear on a regular basis that lenders are reducing
FICO score requirements increasing DTIs, and more down
payment assistance programs are popping up every month.
Individually, these may not be enough to elevate fraud risk,
but when you layer them, fraud risk can increase dramatically.
The bottom line is, when the opportunity for fraud increases—
and that looks to be the case for 2017—the need for a solid
quality control process and automated system becomes even
more important for the continued longevity and profitability
of lenders, as well as their professional partners.
The ARMCO Mortgage QC Industry Trends report is
a post-closing quality control analysis based on data
derived from mortgage lenders across the US utilizing
the ACES Analytics benchmarking software. It
provides an in-depth analysis of residential mortgage
defects as reported during post-closing QC audits.
The data presented comprises net defects and is
categorized in accordance with Fannie Mae loan
VIEW THE FULL REPORT