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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 60 J O U R N A L July 2023 CRITICAL DEFECT RATE FALLS TO UNDER 2% A CES Quality Management, a provider of enterprise quality management and control software services for the financial services industry, has released its 2022 year-end Mortgage QC Industry Trends Report which found overall that the critical defect rate at the end of the fourth quarter of 2022 declined 25.5% over Q3 2022, ending the year at 1.84%. But as averages work, two consecutive quarters that had defect rates over 2% in 2022 meant that the average defect rate for the entire calendar year came out to be 2.07%. According to ACES, of the four major underwriting categories, credit improved considerably over the third quarter, while liabilities achieved a more modest improve- ment. Both assets and income & employment increased significantly, ending income & employment's multiquarter trend of decline. Income & employment remained the leading category of defects reported, with assets and borrower and mortgage eligibility complet- ing the top three categories of defects cited. Appraisal defects also increased during the fourth quarter, ending another run of multiquarter declines. Purchase share remained high during the quarter, with the industry achieving defect parity for the quarter. ACES further said that despite declining in terms of review share, FHA defects in- creased for the second consecutive quarter, as did conventional loans. USDA and VA loan defects continued to improve. "After last quarter's historic high of 2.47%, the reduction in Q4's critical defect rate to a sub-2% level is encouraging and illustrates just how much the precipitous drop in orig- ination volumes impacted lending opera- tions," ACES EVP Nick Volpe said. "However, lenders are starting to see the GSEs take an aggressive stance on repurchase requests for loans with curable defects. In addition, HUD has yet to complete its reviews of some vin- tage FHA loan production, an area notorious for defects. All of this may spell trouble for lenders that are already financially strapped due to declining volumes." "Loan defects are one of the greatest sources of financial risk to lenders in today's tight origination market," ACES CEO Trevor Gauthier said. "The best defense against this kind of threat is a robust QC auditing platform like ACES, which helps lenders retain the value of their loan production by identifying the point of origin for loan defects within the manufacturing process and uncovering defect trends to help resolve these issues before they become the impetus for a repurchase request or sale on the scratch-and-dent market." PANDEMIC POLICIES REDUCED EVICTION FILINGS BY NEARLY 60% A ccording to a new study from The Eviction Lab, pre-COVID-19, one in every six renters faced an eviction filing each year in a typical high-eviction neighborhood. That fell to only one in twelve renters risking eviction during the pandemic. As millions of people were laid off over just a few weeks in the spring of 2020, COVID-19 lockdowns were put in place nationwide. Job losses were concentrated in industries that employ a large number of renters, especially the retail, service, and tourism sectors. With few jobs available and limited savings, these tenants were at imme- diate risk of eviction if they could not pay next month's rent. Evictions in turn raised the prospect of more households ending up homeless or doubled-up with friends or relatives, conditions that fostered the spread of COVID-19. Responding to the unfolding emergen- cy, policymakers at the federal, state, and local levels enacted a range of new policies. These included eviction moratoria to prevent immediate displacement, stimulus payments, and expanded unemployment insurance that allowed many tenants to stay current on rent, and emergency rental assistance (ERA) to help them catch up if they fell behind. These policies drove eviction filing rates to historic lows. The Eviction Lab observed 800,000 fewer eviction cases filed than normal in 31 cities analyzed, representing a reduction of 57.6% In a research article published in RSF: The Russell Sage Foundation Journal of the Social Sciences, experts tracked these patterns in 31 cities across the United States. The Lab assesses the cumulative effects of pandemic-era policies, analyzing changes in eviction filing patterns over the first two years of the COVID-19 pandemic. They pay particular attention to what these policies did to address socioeconomic, racial/ethnic,