Defect Trends Indicate Continued Lender Downsizing

ACES Risk Management (ARMCO), a provider of enterprise financial risk management solutions, released its quarterly ARMCO Mortgage QC Trends Report. The latest report provides loan quality findings for mortgages reviewed by ACES Audit Technology during the second quarter (Q2) of 2018.

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The report’s noteworthy findings for Q2 2018 include:

Continuation of several defect trends:

>>A significant quarter-over-quarter increase (23.8% over Q1 2018) in defects related to Loan Package Documentation, which are often associated with downsizing and understaffing, a trend that began in the previous quarter, Q1 2018

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>>The majority of defects were attributed to the Income/Employment category, a trend that began in the previous quarter, Q1 2018

>>Core underwriting and eligibility issues were the most frequent cause of critical defects, a trend that has continued since the Q1 2017

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>>The critical defect rate decreased slightly, from 1.72% in Q1 2018 to 1.71%.

>>Defects attributed to Borrower and Mortgage Eligibility increased by roughly 70%, from 6.57% in Q1 2018 to 11.36%

“In Q2 2018, we saw continued increases in defects typically resulting from downsizing and understaffing,” said Phil McCall, president and COO of ARMCO. “This seems to indicate that many lenders are still responding to the reduction in business and compressed margins with personnel changes, even in a purchase-dominated market.” 

Although defects associated with loan package documentation do not usually result in non-saleable loans, they can still have a detrimental impact on profitability. They often result in investors and insurers suspending loan purchases, which can reduce warehouse line capacity and result in price adjustments.

“The market’s current fluctuation demonstrates the financial reasons lenders need QC technologies that are dynamic and adaptable enough to respond quickly when the market shifts,” said McCall. “Sacrificing quality is a costly but unnecessary consequence of revenue reductions. In reality, no lender needs to accept less than the highest quality, regardless of contracting volumes or margins.”

The Q2 2018 ARMCO Mortgage QC Industry Trends Report is based on nationwide post-closing quality control loan data from over 90,000 unique loans selected for random full-file reviews, as was captured by the company’s ACES Analytics benchmarking software. Defects listed in the report are categorized using the Fannie Mae loan defect taxonomy. Each ARMCO Mortgage QC Industry Trends report includes easy-to-read charts and graphs, a summary that outlines ARMCO’s overall findings, a breakdown of defect rates for each Fannie Mae loan defect category, and a short conclusion. ARMCO issues a one-year analysis for the calendar year with each fourth quarter Mortgage QC Industry Trends Report.

ARMCO Mortgage QC Industry Trends Reports are available for download, free of charge, at

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ARMCO Boosts QC Process Efficiency And Security

ACES Risk Management (ARMCO), a provider of enterprise financial risk management solutions, has announced new product enhancements that increase QC process efficiency and security for lenders and servicers using its auditing platform, ACES Audit Technology. The top features of this upgrade include the addition of single sign-on capability, and integration with DataVerify.

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ACES’ new single sign-on capability enables users to access ACES using the same login credentials and password they use to access their company computers—a feature of particular use to enterprise-level organizations.

“Our clients have realized that using ACES as their testing and compliance platform across the enterprise brings standardization and cost savings,” said Phil McCall, president of ARMCO. “Our addition of single sign-on allows our enterprise clients to integrate ACES as part of their suite of corporate applications utilized by one single login and password.”

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ACES’ new direct integration with DataVerify enables users to order DataVerify’s data verification assistance services directly from the ACES platform. It also transfers data directly from the loan file, and automatically files the DataVerify reports into the appropriate area, eliminating the security risks and errors that can result from rekeying and transferring information manually.

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“Lenders and servicers often contract staff in declining markets, like the one the industry is currently facing,” said McCall. “As we found through the most recent ARMCO Mortgage QC Industry Trends Report, this can put them at risk of errors and other quality issues. This upgrade further helps assuage the challenges that can occur when lenders and servicers downsize and reorganize.”

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Risks Associated With Lender Downsizing

ACES Risk Management (ARMCO), a provider of enterprise financial risk management solutions, has released the quarterly ARMCO Mortgage QC Trends Report. The latest report provides loan quality findings for mortgages reviewed by ACES Audit Technology during the first quarter (Q1) of 2018. The report’s noteworthy findings include:

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>> In Q1 2018, the critical defect rate increased from the previous quarter’s 1.68% to 1.72%.

>> As with the previous quarter, in Q1 2018, the majority of critical defects were attributed to the Income/Employment category.

>> Q1 2018 saw a 25% increase in the number of defects attributed to the Loan Package Documentation category—these defects are often associated with downsizing and understaffing.

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>> In Q1 2018, the number of defects attributed to the Borrower and Mortgage Eligibility category dropped to 6.57%, roughly 50% of the previous quarter’s rate of 12.24%.

>> In Q1 2018, critical defects related to core underwriting and eligibility issues continued to be the most frequently occurring—which is typical in purchase-driven markets.

“The distribution of critical defects for the first quarter of this year differed significantly from those we saw during the last quarter of 2017,” said Phil McCall, ARMCO’s president. “What the report reveals is consistent purchase-dominant contracting markets. One of the newest trends is a spike in defects associated with loan package documentation. This is often a result of lender downsizing and staff consolidation, which occurs when declining loan volume becomes a trend—as it did in the beginning of this year.”

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Defects associated with loan package documentation do not usually result in non-saleable loans. However, they can still have a detrimental impact on profitability. “These types of errors often occur when staff members are rushed or unfamiliar with job tasks. Omitting a document required by an investor or insurer is a typical example,” he said.

“Errors like this can cause investors and insurers to suspend loan purchases, which reduces warehouse line capacity and can result in pricing adjustments, both of which significantly impair profitability.”

The Q1 2018 ARMCO Mortgage QC Industry Trends Report is based on nationwide post-closing quality control loan data from over 90,000 unique loans selected for random full-file reviews, as was captured by the company’s ACES Analytics benchmarking software. Defects listed in the report are categorized using the Fannie Mae loan defect taxonomy. Each ARMCO Mortgage QC Industry Trends report includes easy-to-read charts and graphs, a summary that outlines ARMCO’s overall findings, a breakdown of defect rates for each Fannie Mae loan defect category, and a short conclusion. ARMCO issues a one-year analysis for the calendar year with each fourth quarter Mortgage QC Industry Trends Report.

“This quarter’s findings show how current data helps lenders protect profitability,” said McCall. “If lenders have had layoffs, or if they’re anticipating downsizing, they should know where and how it will impact their lending ability. Gaining access to this type of data helps eliminate the number one cost associated with downsizing.”

A New Way To Increase Efficiency And Analyze Fraud Investigation Data

ACES Risk Management (ARMCO), a provider of technology for loan quality and compliance testing, data validation and analytics, announced the launch of Fraud Case Manager, a technology designed for managing and analyzing fraud investigations.

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“Fraud cases are full of confidential details and valuable data, and most lenders aren’t using this data to their advantage,” said Phil McCall, president of ARMCO. “Now lenders can use Fraud Case Manager to protect sensitive information, analyze data for strategies going forward, and increase efficiency and accuracy.” 

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Mortgage lenders, like all financial institutions, are required by law to monitor and report suspicious activities. Most lenders have numerous fraud investigations open at any given time. To manage them, they use spreadsheets or disparate technologies, both of which are prone to security breaches and errors. 

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Fraud Case Manager provides lenders with a secure, fully configurable web-based alternative where they can manage all fraud investigations in one central location, and avoid the risks and delays associated with traditional fraud case management methods. For example, users can track any detail of any case in seconds rather than searching through numerous spreadsheets and technologies. They can limit usage to authorized parties rather than using open access documents like spreadsheets. Fraud Case Manager allows users to analyze data and create comprehensive reports that provide valuable insights for strategies going forward, rather than remaining unaware of trends and reacting to repeated issues as they arise.

“Fraud will never be eliminated—lenders’ best defense is identifying trends as quickly as possible,” said McCall. “Now they can uncover the issues that trigger investigations in moments, whether brought about by staff members, oversights or any other variable. That’s the biggest step forward lenders can take in mitigating fraud risk.”

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Allowing For The Seamless Transfer Of Bank Data

ACES Risk Management (ARMCO), a provider of enterprise financial risk mitigation software solutions, has integrated with BankVOD, the company that pioneered the electronic risk interface for asset verifications. This integration, which provides a direct, seamless connection between ARMCO’s ACES Audit Technology and BankVOD’s Verification Hub, enables ARMCO clients the ability to order Asset Verifications, 4506-T, Employment and Occupancy and Liens & Judgments on a batch or flow basis, and receive the data via a secure electronic transfer directly into their ACES instance.

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BankVOD is the exclusive provider of bank statement verifications for 18 of the country’s top 50 banks. Prior to this integration, organizations were required to leave their QC software system, then order and receive IRS tax transcripts and bank verifications from BankVOD’s secure web-based portal. In addition, they were not able to order IRS transcripts or verifications on a bulk basis.

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“This integration doesn’t merely make the verification process faster, it also makes it more consistent and secure, which are two big factors in achieving quality,” said Phil McCall, president of ARMCO. “At ARMCO, we feel lenders should never have to choose between quality and time or resources. That’s why we are constantly pursuing ways, like this integration, to make quality faster, easier and more accessible to achieve for lenders of all sizes.”

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“Industry leading companies like ARMCO always appreciate our unflinching commitment to providing the most secure way that files are exchanged and data is handled,” said Tim Portley, co-founder and managing partner of BankVOD. “We’re pleased to partner with ARMCO to offer lenders an even faster and more efficient way to verify bank data, and we’re elated to discover new ways to make the user experience the best it can possibly be.”

QC Player Is Ready For Day 1 Certainty

ACES Risk Management (ARMCO), a provider of financial quality control and compliance software, has updated its flagship ACES Audit Technology with new functionality that aligns with Fannie Mae’s Day 1 Certainty (D1C) initiative. With this update, ACES now includes additional fields for assessing asset, income, employment and collateral data according to Fannie Mae’s D1C initiative. The company also updated its rule-based technology to assist auditing these loans according to the D1C initiative.

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ACES users continue to use ACES Intelligent Questionnaire technology to customize questions and scripts according to their own unique needs and objectives. ACES’ direct import of D1C data enables users to preserve the integrity of their QC processes, while also aligning with D1C parameters.

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“Lenders can gain added protection under Fannie Mae’s Day 1 Certainty initiative, but they have to follow certain protocols,” says Phil McCall, COO of ARMCO. “We updated ACES so our clients can automate their auditing process to account for the different checkpoints associated with D1C. Our clients know that ARMCO’s mission is protecting their businesses. They know they can rely on us to stay on top of all guidelines, initiatives, regulations and trends, and they know we will continue providing the tools that help them grow and protect their businesses, not just for now, but also for the long haul.”

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The recent ACES software enhancement went into effect for all clients June 12, 2017.  Clients and interested parties can get further information on this update via the proprietary ACES Knowledge Center, or by visiting the ARMCO website ( for a demonstration of the latest software.

ARMCO Enhances ACES Technology To Support Upcoming HMDA Changes

ACES Risk Management (ARMCO), a provider of financial quality control and compliance software, announced that it has upgraded its ACES Audit Technology solution with over 15 new enhancements. The enhancements include support for the HMDA changes scheduled for 2018, at-a-glance dashboards, and heightened automation for the system’s ACES Intelligent Questionnaire (ACES IQ), which has been shown to reduce QC audit times by an average of 30 percent.

ACES Audit Technology also includes new at-a-glance dashboards that provide users with a high-level view of the loans and exceptions in their queue in an easy-to-read format. ACES Dashboards’ visual charts and graphs help users to quickly identify issues and determine pipeline status in real-time. Its live audit-level filtering enables users to customize the experience according to their unique goals and demands.

“Industry requirements keep expanding and the number of audit questions are increasing,” said McCall. “In response, we made considerable improvements to ACES IQ technology, which include pre-set and user-defined audit questions, to help lenders streamline efficiencies.”

ACES IQ has been enhanced to include multiple layers of automation, including audit, loan and borrower level dependencies, supported by data-driven triggers that will support an efficient and streamlined workflow. With this enhancement, ARMCO clients are reporting reductions in post-closing audit times of up to 30%.

“When you combine a contracting market with a regulation-heavy environment—and that’s exactly what the mortgage industry is facing right now—lenders need operations that aren’t just powerful, but also lean,” said Avi Naider, CEO of ARMCO. “This update enhances quality and compliance, while also providing the efficiency and speed for a leaner, more economical process.”

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Report Reveals Both Increases And Decreases In Key Areas of Loan Defects

ACES Risk Management (ARMCO) has released its ARMCO Mortgage QC Industry Trends report for the third quarter of 2016. Using the Fannie Mae loan defect taxonomy, the report analyzes post-closing quality control data from loan files and findings captured by the ACES Analytics benchmarking system. Meaningful information contained in the report provides the industry with insight into the current state of loan quality nationwide.

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The report notes a continuing downward trend in the critical defect rate, which dropped to 1.27 percent after reaching a high of 1.92 percent in Q1 of 2016.  This reflects a 28.3 percent drop in Q3 of 2016, following a 17.8% drop in Q2 of 2016, providing an overall drop of just over 46% from the high of 1.92% from Q2 of 2016.

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“During the past nine months, investors and lenders have been able to clarify the impact of TRID-related errors on their operations and fine-tune the associated risks – both short and long term,” says Phil McCall, COO of ARMCO.

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An analysis of top-ranking defect categories for 2016 highlights Legal/Regulatory/Compliance as an ongoing leading problem area.  In fact, the number of total defects associated with the Legal/Regulatory/Compliance category spiked by more than 14 percent in the quarter covered by the report. However, the critical defects within that same category dropped to a 12-month low, comprising 22.69 percent of all critical defects. Changes in lender severity ratings related to TRID are the cause of this decrease, as explained in detail in the report.

Comprising 32.5 percent of all reported defects, Loan Package Documentation comes in as the second highest defect category and is still an ongoing issue within the entire lending process. While this category is known to be problematic across the industry, these defects are generally curable and rarely affect loan salability.

Notably, critical defects associated with Income/Employment led all categories for “Credit Related Defects.”  The miscalculation of income was the primary reason reported with critical defects in this category.

“The findings in the Q3 Mortgage QC Industry Trends report demonstrate that while the industry as a whole is making progress in mitigating loan defects, there are still recurring trouble areas that must be addressed,” said Avi Naider, CEO of ARMCO.  “At the same time, as we passed the one year anniversary of the implementation date for TRID, its fascinating to see a complex picture emerging among our lender base: Essentially, TRID defects still represent a large percentage of overall defects.   Yet, lenders are concluding that minor TRID defects do not impact the saleability of their loans based on their experience in the marketplace.”

The report also notes that Fannie Mae has provided considerable guidance to lenders as to how defects are reported for “Credit Related Defects” and what causes a defect, the risk associated with a defect, and how to report these defects under a standardized platform.  To date, no similar guidance has been provided by the Consumer Financial Protection Bureau (CFPB) regarding TRID. Ultimately, the report concludes, the CFPB should consider offering guidance and establishing standards pertaining to TRID defects, to avoid deviations in reporting of similar defects across industry lenders.

Click here to review the full report.

Executive Spotlight: Phil McCall of ARMCO

phil-mccallThis week, the spotlight shines on issues ranging from fraud to data management, and our guest subject is Phil McCall, who recently joined the Pompano Beach, Fla.-based ARMCO – Aces Risk Management as chief operating officer.

Q: You have more than 20 years of experience in the industry. In your opinion, has the industry changed over this period for the better or for the worse?

Phil McCall: Definitely for the better. If you would have asked me this question 10 years ago, I probably would have provided a completely different answer. But for the overall, high-level view of the past 20 years, I have seen changes take place that make me proud to be a part of the mortgage industry. Most notable to me is a redefined commitment to quality. This has spanned all aspects of the industry – from the licensing and training of our originators, to the extensive QA that is in place to monitor the quality of our manufacturing process from the day of application to the day a loan is paid in full.

Q: What is your opinion on the current state of mortgage fraud?

Phil McCall: I think the industry is currently in a very delicate position with regard to mortgage fraud. We as an industry have made huge strides in improving our overall book of business and, by doing so, we are giving the needed attention to the manufacturing process of loan originations.

With that said, I think this improvement to mortgage quality may unintentionally mask fraudulent activities taking place. We have moved to a much more intense QA and QC process, but these reviews are typically geared to perfect the manufacturing process and identify defects. In most cases, the personnel completing these reviews are not adequately trained in fraud detection. As we have improved our mortgage quality and defect monitoring, the fraudsters will (if they haven’t already) perfect their manufacturing processes to slide under the radar by dotting the “I’s” and crossing the “T’s” as to not draw attention to a bigger problem that is just below the surface.

Q: Does the industry have a good handle on dealing with fraud?

Phil McCall: I’m not 100% sure we do. Overall, I think the past three years have produced a great book of business. The enhanced guidelines and regulatory oversight have required every lender to step back and properly assess all of their processes.

As we meet these new requirements, I fear a potential form of complacency setting in among the lending personnel. Somewhat along the lines of: With all of the quality control steps we are taking – how could any fraudulent activities be going on? This would be a critical misconception and if anything, lenders should be sharpening their fraud detection skills and become even more proactive in the training and education of all of their personnel.

This also brings up the point of lenders making better use of their own loan data to more accurately assess the risk points associated with their particular lines of business.

Q: On the whole, do you believe the industry is using data correctly? And, at the risk of being too negative, where can the industry improve in its handling of data?

Phil McCall: I believe the industry is at the beginning stages of using data correctly. In the past year, I have seen a noticeable improvement in the acceptance of lenders utilizing data to properly assess risk.

With this said, I think many companies lack the proper tools to adequately extract the relevant data and to properly assess this data within their own book of business. I see most of these deficiencies being tied to antiquated systems and lenders attempting to make use of technology that was never built to fulfil this need.

I believe the time is now for the industry to embrace the technology which provides them the ability to utilize big data as a part of their recurring assessment of risk throughout their organization. It is best to work with a trusted partner whose business is quality control coordination, communication and reporting. The right vendor can help lenders visualize their data, understand it and share it.

Q: What are some of the major projects you will be working on at ARMCO?           

Phil McCall: One of the reasons I joined ARMCO is that the company fully embraces a philosophy of using big data to improve loan quality throughout the industry. My current focus is on enhancing the analytics platforms of the company.

In the upcoming weeks, we plan to formally announce an exciting integration through ACES, which gives business executives powerful visual analytical tools such as geographic heat maps and enables data drill down in real time to really understand deviations in quality throughout the manufacturing process.

I am also working on refining the ARMCO industry benchmarking solution – knowing how your organization stacks up against the industry from a quality control standpoint is critical. Yet, the process is very non-standardized across the industry. We are refining our technology to allow for that standardization and normalization. It’s pretty exciting stuff!

ARMCO – Aces Risk Management is online at