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The Gross defect rate is based on the preliminary quality control (QC) audit findings before the rebuttal and correction process. The Net defect rate is based on the final QC audit findings after the rebuttal and correction process.

Many lenders often rely on calculating the net defect rate and do not pay attention to the gross defect rate. Using only one defect rate calculation is not an ideal method to gauge your error rate and does not utilize the wealth of information available BEFORE fixes are made to the audit findings.

It is every lender’s hope (or is that a dream!) to have QC reports that are consistently error free. Realistically that is nearly impossible, but the initial findings can be used to improve and enhance your process from the time the loan is originated through closing and beyond to achieve both fewer initial and final QC findings.

The analysis should consist of determining the root cause of the error and then develop and carry out a plan of action to correct the process that led to the error. This analysis may tell you that you need to develop better processes to flag deficiencies earlier, provide additional training, make a decision to outsource QC or even change to a new QC company. An important part of the quality control process is to see improvement in your defect rates – to prevent errors – not to just walk through the rebuttal and correction process month after month!