Income Paperwork Now Drives Mortgage Defects

Borrowers with complex income or job histories should expect closer document review as lenders flag these files more often.

Updated on Nov. 10, 2026 in Residential

Clean editorial illustration of a neat stack of blank cream paper beside a warm desk lamp and a brass paperclip, on a slate-blue desk. — Mortgage quality-control firm ACES reported the overall critical loan defect rate fell to 1.64% in the second quarter of 2026, while income and employment problems rose. AI Illustration. Upload story photo >

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Mortgage quality-control firm ACES Quality Management reported that the overall critical mortgage defect rate fell to 1.64% in the second quarter of 2026, down 4.1% from 1.71% in the first quarter but still 8.6% above the 1.51% rate a year earlier. For U.S. borrowers and lenders, the figures signal that loan files are being scrutinized more closely even as the overall error rate eases.

Why it matters

Lower defect rates mean fewer loans are being flagged for errors that can delay or derail closings, which affects how smoothly buyers move from application to keys. The shift toward income and employment problems points to documentation as the main pressure point for borrowers heading into their next mortgage.

Income/Employment defects climbed to 23.18% of critical defects, while Borrower and Mortgage Eligibility defects rose 60.4% to 11.92%. Refinance review share fell 35%, from 32.05% to 20.83%, as Q2 2026 purchase originations reached an estimated $360 billion and refinance volume about $207 billion.

The players

ACES Quality Management

A mortgage quality-control firm whose audit data helps lenders identify loan errors that can delay or derail closings for home buyers.

The details

Quality control audits review loan files after closing, and lenders flag critical defects when documentation or calculations do not meet standards. Calculation errors drove most of the rise in income and employment defects, which climbed from 45.28% to 51.43% of that category's findings. As a result, borrowers whose income or job history is complex may face more documentation requests during underwriting.

Q1 2021 is the baseline period against which Q2 2026 defect rates are compared to median and average levels.
Q1 2026 recorded the prior-quarter critical defect rate of 1.71%.
Q2 2026 saw the overall critical defect rate fall to 1.64%.
ACES announced the Q2 2026 report on November 10, 2026.

Money Landscape

The critical defect rate remains 8.6% above its Q2 2025 level, indicating that quality-control pressure on mortgages has not fully returned to last year's levels. The quarter's mix shift, with Legal/Regulatory/Compliance defects falling 17.3% while Income/Employment defects rose, shows the focus of lender scrutiny moving toward borrower qualification.

If you are planning to buy a home, expect lenders to request more documentation on income and employment, since those defects now make up the largest share of critical findings. Refinance activity has cooled, so homeowners weighing a refinance may find fewer lenders competing on quick approvals.

The takeaway

The big insight is that lenders are finding fewer errors overall but more problems with borrower income and employment documentation. Before applying for a mortgage, gather recent pay stubs, tax returns and employment verification so your file is ready for closer review.