DENVER — The overall critical defect rate in mortgage loans increased 15.27% in Q2, rising to 1.51% from 1.31% in Q1, according to the ACES Mortgage QC Industry Trends Report from ACES Quality Management®(ACES).
The company is a provider of enterprise quality management and control software for the financial services industry.
According to the company, key findings from the Q2 2025 ACES Mortgage QC Industry Trends Report include, in addition to the above:
- Appraisal defects surged 156.5%, while Borrower/Mortgage Eligibility defects more than doubled to 15.87%.
- Income/Employment defects improved 19.7%, falling from 22.99% to 18.45% of all critical defects.
- Loan Documentation and Insurance defects declined 32.6% and 25.2%, respectively.
- Purchase defect share decreased to 73.96%, while refinance defect share climbed to 26.04% amid increased cash-out activity.
- Conventional loan quality improved, while FHA and VA findings rose modestly.
‘Nuanced’ Situation
“Although the overall critical defect rate increased for a second straight quarter, the situation is nuanced,” Nick Volpe, executive vice president at ACES Quality Management, said in a statement. “The rise was mainly in specific categories such as appraisals and eligibility-related areas. Meanwhile, other key underwriting areas saw notable improvements. This mixed performance demonstrates the importance of continuous monitoring and targeted quality control efforts.”
