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.”

Javelin Strategy & Research today announced the hiring of consumer finance and fintech expert, Austin Kilgore. In his new role, Kilgore will lead Javelin's expansion into Digital Lending. After Kilgore will advise clients on emerging technologies and strategies that provide an exceptional experience and deliver faster and more accurate underwriting and portfolio management decisions across mortgage, auto, student and personal loans.

Javelin Strategy & Research

Financial services companies are increasingly seeking out digital strategies to lower compliance and customer acquisition costs while enhancing the borrower experience. Javelin's Digital Lending Practice provides actionable insights into these trends with a variety of quantitative and qualitative research products, including proprietary data, competitive benchmarking, comprehensive reports and other analytical content.

The firm also offers a suite of custom research and marketing services, including in-depth white papers, live and virtual presentations, consulting engagements and other bespoke resources to help clients assess their strategic positioning and grow their business.

"Javelin has built its reputation around objective and independent data, analysis and insights," said Al Pascual, Javelin Strategy & Research Senior Vice President, Research and Head of Fraud & Security. "Austin's breadth of knowledge and unique perspective on the intersection of lending, automation and innovation will enable clients to better navigate the nuances of these highly complex industries."

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Before joining Javelin, Austin was an award-winning journalist, covering mortgage finance, real estate, fintech, payments and other areas of financial services. Most recently, he was the editor in chief of National Mortgage News and a contributing editor to American Banker, where he oversaw SourceMedia's coverage and analysis of mortgage finance and real estate. Previous roles at SourceMedia include managing editor of PaymentsSource and Mortgage Technology. Before that, he was an editor and reporter for HousingWire.

"As lenders and fintech firms grapple with compliance risk, shrinking margins and greater demand for a seamless experience, the technology table stakes have never been higher," Kilgore said. "Javelin's mission aligns with my own personal passion for financial services innovation and it's a privilege to take on this new role."

CoreLogic has integrated its OnSite property condition reports with the Ellie Mae Encompass platform.

OnSite is a property condition report coupled along with a local market conditions and patent-pending features that are specifically designed to help institutions meet the Federal requirements when an automated valuation model is used for mortgage lending purposes.

“Organizations are always looking for ways to improve efficiencies during the valuations process, particularly during the home equity lending process,” said Jonathan Nutting, senior leader of valuation operations for CoreLogic. “As the first integration of its kind on Encompass, users will now be able to easily incorporate this solution into their existing workflows, saving them time and money in instances where an appraisal is not necessary.”

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OnSite is designed to help lenders comply with federal guidelines surrounding the verification of the physical condition of a property. In some home-equity-lending situations, OnSite can be leveraged with an AVM in lieu of an appraisal. All Onsite reports use a patent-pending algorithm to create an objective overall condition rating that supports the lender’s valuations processes.

This integration also allows users to access OnSite Plus--a property condition report for situations where a licensed real estate broker or agent is required to gain access to a property, or when a local expert is needed.

OnSite joins 15 other CoreLogic products that are integrated with the Encompass platform, including CondoSafe condo lending solutions, Instant Merge--the nation’s most popular three-bureau merged credit reporting solution, flood determinations, Property Tax Estimator, LoanSafe Fraud Manager, LoanSafe Risk Manager, appraisal management services via Mercury Network, Merge Plus credit supplements, 4506-T Direct, FinalCheck LQI Compliance, automated valuation models, SSN Verification and several services within the Ellie Mae Total Quality Loan.

By Michael Detwiler

(This is the first column in a monthly series covering the business strategy of Class Valuation from the point of view of the chief executive officer, Michael Detwiler. He is the former managing director of Accenture and the founder of Mortgage Cadence.)

I believe that being a leader involves solving problems by making things better, and I was never satisfied with just running a business that operated firmly within the status quo. We didn’t run Mortgage Cadence that way, and it’s not how we led our teams at Accenture. So when I participated in the acquisition of Class Appraisal, now Class Valuation, I came into it with the same mindset.

Naturally, that begs the question: “what problems should an appraisal management company be solving now?” What should we be doing better for our lender customers and the mortgage ecosystems we both serve? I have some thoughts on that.

I find four problem areas we need to address now.

When we fix these problems, it could potentially change the way real-estate collateral risk is evaluated for home finance and how borrowers perceive the mortgage loan origination process.

1. Speed

Most industry executives do not consider speed a problem when it comes to valuation, but it is if we move so quickly that it compromises our ability to generate an accurate statement of value for a piece of real estate. It certainly is a problem if--in our pursuit of efficiency--we ignore the customer’s experience.

We need to re-evaluate what we consider a fast appraisal process. Does that mean instantaneous? Does it mean we can’t take time to send out a professional appraiser or inspector? Where does the homeowner’s schedule come into play? Efficiency is critical. Speed for its own sake may not be.

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2. Scale

Recent problems in states with fast-growing populations clearly demonstrated that having access to a national panel of professional fee appraisals does not, in and of itself, guarantee that the business will scale.

We need to redefine national coverage in light of better data and analytics. The business will surge again. When that happens, we need to be able to handle it more efficiently than AMCs did in the past.

3. Customer Experience

The industry is learning how to treat its client’s client (the borrower) like an important part of the home loan origination process. Borrower satisfaction is on the rise, and that’s good news for all of us. But what about the seller’s satisfaction? This party isn’t even the customer of our lender customer.

And yet, every consumer our industry touches, deserves the same high level of customer experience. If we don’t all think so, our federal regulators certainly do. What can the AMC and the professional appraisers in the field do to ensure everyone in the value chain is delighted by the process? A lot, actually.

4. A focus on data

Our business is based on the opinions of professional appraisers, but whether we like it or not it’s starting to look more like a big data application to some stakeholders. With form redesigns in the works that will capture even more property data, AMCs and appraisers in the field will be responsible for collecting this information, and in order to serve our lender clients, we will be bound to do so.

Will the valuation space favor the supercomputer? I have a lot of ideas about that.

In the future, I’ll use this space to go into detail about how we will approach some of these problems and explain why the closer we get to solutions for each of them, the more they begin to look like opportunities for all of us.

About the Author: Michael Detwiler is a 20-year veteran of the mortgage industry. He currently serves as chief executive officer of Class Valuation and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..