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Question:  What are the top defects and trends the mortgage industry is currently uncovering in Quality Control (QC) reviews?

Answer: 

In its Quality Insider, “Understand Top Defects to Help Strengthen Loan Qualify” (September 2024 edition), Fannie Mae identified six (6) new defect trends (bolded below), which recently moved into its list of top 10 defects identified during QC reviews. 

For loans acquired in Q1 2024, Fannie Mae’s top 10 initial significant defects* in a random sampling were: 

1. Incorrect income calculation – rental income/loss
2. Monthly payments not properly calculated;
3. Inappropriate comparable sale(s) selection due to location;
4. Insufficient assets to close;
5. Omission of debts documentation missing;
6. Income misrepresentation;
7. Incorrect income calculation- base;
8. Borrower not employed;
9. Undisclosed liability; and
10. Failure to adjust comparables. 

* Initial significant defects = significant issues cited prior to a final remediation  activity

Fannie Mae provided detail on each defect within the Quality Insider and reminded lenders of the importance of remaining current on recent industry defect trends as it allows for a more dynamic QC program, better action planning, and the prevention of similar defects within a mortgage lender’s organization.   For instance, mortgage lenders can leverage this data to further develop personnel training to prevent defects.  Fannie Mae also advised mortgage lenders to keep a line of sight on defects that decrease in issuance to avoid re-emergence.