Rates blipped in Q4 and rose in January, producing a rush to close loans and avoid rate-lock expirations in Q1. Income and employment defects increased nearly 50%, reaching 23% of critical defects. Borrower and mortgage eligibility defects surged 328% quarter-over-quarter, and credit defects rose 12%. Lenders stretched to fit borrowers into programs amid tight affordability and narrow guideline flexibility, increasing miscalculations and defects. Asset-related defects fell from 16.1% to 11.5%, legal and compliance issues declined from 22.6% to 14.9%, and appraisal defects dropped 52.5%, while insurance defects edged up to 3.45%.
We got a little bit of a rate blip in the fourth quarter. They went back up in January. And it wasn't a refi boom that happened in the fourth quarter by any stretch of the imagination, but after such a prolonged period of elevated rates, any little bit helps. The rates did change a little bit in the first quarter.
Historically, what we've seen is when rates do tick up from quarter to quarter, you get sort of a mad rush to get things closed, avoid rate locks expiring, he added. They may have locked in a rate in December but the actual loan didn't close in the first quarter. And you get some more internal pressure to get things done; you have to move faster there.
Of the numerous categories covered in the report, income and employment defects jumped by nearly half, reclaiming the top spot at 23% of all critical defects. Borrower and mortgage eligibility defects spiked by 328% quarter over quarter, while credit defects rose 12%. Volpe said that the first increase is so dramatic because the figure was so low in the fourth quarter of 2024. It also shows lenders are stretching to fit borrowers into programs.
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