The S&P-Experian Consumer Credit Default Indices, which measure changes in consumer credit defaults, show that the composite rate rose two basis points from last month to 0.92 percent.

The first mortgage default rate was one basis point higher at 0.70 percent. The bank card default rate rose six basis points to 3.48 percent. The auto loan default rate remained unchanged at 0.99 percent.

Four of the major metropolitan statistical areas showed higher default rates compared to last month. The rate for New York increased 6 basis points to 1.05 percent, while the rate for Chicago rose four basis points to 0.92 percent. The default rate for Los Angeles was up two basis points to 0.51 percent. The rate for Dallas was one basis point higher at 0.90 percent, while the rate for Miami decreased 12 basis points to 2.07 percent.

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After seven straight months of decline, bank card default rates have now increased for three consecutive months. This upward trend has been the primary contributing factor to the concurrent increase in the composite default rate, which has seen its rate increase for five-straight months. All default rates are lower compared with 12 months ago.

[caption id="attachment_9470" align="alignleft" width="240"] David Blitzer[/caption]

"This month's data show that four of the five cities tracked as well as all consumer credit default categories were higher in February," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "This is more of a seasonal shift than a sign of rising default rates. Over the last several years, December, January and February have all experienced increases in default rates across cities and loan categories.

“Further, none of the figures suffered large increases compared to their levels of one year ago,” said Blitzer. “Retail sales saw strong gains in January and auto sales continued at an annual rate of about 16.5 million vehicles. Any upward pressure on mortgage defaults stemming from the rise in home prices over the last few years is being offset by weakened sales of new and existing homes.

"The overall economy is not expected to put any pressure on consumers' financial condition. Employment and job growth continue to be quite strong and wages have recently seen some gains,” said Blitzer. “The economy is settling into a stable growth path with anticipated GDP gains of 2 percent to 2.5 percent by most analysts in 2019. Two perennial sources of anxiety for economists and consumers are inflation and the unemployment rate. Inflation remains around 2 percent and the unemployment rate is at or below 4 percent in recent data. As long as these figures remain steady, the Fed isn't likely to shift interest rates and consumers should not have difficulty paying their bills, which could keep default rates close to current levels."

The critical defect rate reached 1.89 percent in the third quarter of 2018, an increase of 11 percent, compared with 1.71 percent defect rate reported in the second quarter.

It’s the second highest critical defect level since the TRID rule went into effect in October 2015, according to the “ARMCO Mortgage QC Trends Report” from Aces Risk Management Corp. The latest report covers the third quarter of 2018 and provides loan-quality findings for mortgages reviewed by ACES Audit Technology.

[caption id="attachment_11071" align="alignleft" width="250"] McCall: 'Lenders are still dealing with the quality issues that result from downsizing.'[/caption]

“You can tell a lot about a market from the percentage and distribution of critical defects,” said Phil McCall, president and COO of ARMCO.  “In Q3 2018, defect activity indicates that lenders are still dealing with the quality issues that result from downsizing.”

The report’s noteworthy findings in the third quarter 2018 report include the following:

• Critical defects attributed to loan package documentation spiked almost 23 percent over the previous quarter, and the fourth consecutive quarter to see a significant increase in this category.
• The number of defects attributed to the income-employment category dropped almost in half, to 12.5 percent from 22.73 percent in the previous quarter.
• FHA loans accounted for a disproportionate number of critical defects, comprising 28.20 percent of originated loans in the benchmark, but accounting for 49.55 percent of loans with critical defects.

The Q3 2018 Trends Report revealed that the categories of Credit and Liabilities each increased moderately, and the percentage of property appraisal-related defects reached its highest point of the year.

“This aligns with lower overall production and compressed margins, two key components of a hyper-competitive market,” said McCall. “In an effort to win market share, investors often become more aggressive by expanding eligibility guidelines, while originators try to make up for declining volume by submitting loans of lower than usual quality.”

First American Mortgage Solutions LLC has upgraded its collateral inspection services with mobile-enabled technology.

“Valuations, like all other aspects of the mortgage lifecycle, are becoming increasingly modernized and technology-driven,” said Kevin Wall, president at First American Mortgage Solutions. “With our enhanced mobile and data delivery capabilities, we’re helping lenders and valuation professionals stay ahead of the changes and evolving inspection landscape.”

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The enhancements include the following:

• New mobile inspection application: The new application offers enhanced mobile data capture, image and sketch options with an intuitive workflow that delivers dynamic data collection. The application works with multiple products in a collaborative environment.
• New collateral inspection portal connects appraisers and inspectors to appraisal management companies, lenders and investors, enabling efficient collaboration and data delivery. The technology allows quality control to take place much earlier in the inspection process, resulting in efficiency gains for lenders and an improved consumer experience.
• Trained, vetted national staff and panel inspection services are trained to use the latest technologies to deliver the evolving types of inspections as a result of appraisal modernization.

[caption id="attachment_11056" align="alignright" width="159"] Kevin Wall[/caption]

“This investment in technology further strengthens our decades of inspection experience by continuing to reduce turn-times, improve the customer experience and enhance quality. We’re 'inspection ready' for all of our customer needs,” said Wall.