Lenders Continue to Lower Credit Requirement Thresholds

Posted: January 21, 2014 in Mortgage Information

After loosening steadily for several months, credit standards for mortgage loans ended 2013 at their lowest level all year, according to the December Origination Insight Report from Ellie Mae.

The average FICO score for a first-lien loan closed in December was 727, down from 729 the previous month and 748 a year ago.

Just under one-third of loans—31 percent—had FICO scores of less than 700 in December, up 10 percentage points from December 2012, according to Ellie Mae.

The average loan-to-value (LTV) ratio for a loan closed in December was 82. LTV hovered between 79 and 82 all year.

Debt-to-income ratio also ended the year with a high—39 percent, according to Ellie Mae.

December’s closing rate was 54.3 percent, a little higher than November’s rate of 53.1 percent.

Purchase loans made up a greater share of December’s closed loans than refinance loans, following a trend started in the second half of the year.

Purchase loans accounted for 54 percent of loans, while refinances accounted for 46 percent.

This is little changed from November’s 55-45 percent split. However, it is a significant shift from a year ago when purchase loans made up just 31 percent of loans and refinances accounted for 69 percent.

“HARP [Home Affordable Refinance Program]-related refinancing activity increased for the second month in a row, as conventional refinances at 95 percent-plus LTVrose to 12.1 percent in December, the highest they’ve been since August 2013,” pointed out Jonathan Corr, president and COO of Ellie Mae.

Conventional loans accounted for 69 percent of loans originated in December, while Federal Housing Administration-backed loans accounted for about 20 percent, unchanged from November.

Interest rates on all types of loans increased over the month, according to Ellie Mae.

The average rate for a 30-year fixed-rate loan closed in December was 4.59 percent, up from 4.53 percent in November.

The average rate for a 15-year fixed-rate loan was 15.1 percent, up from 14.5 percent in November.

The average rate for an adjustable-rate mortgage loan closed in December was 6.6 percent, up from 5.8 percent in November.

Loans originated in December took an average 43 days to close, up slightly from 42 days in November but down from 55 days a year ago.

Purchase loans took longer to close at 46 days, while refinance loans closed in about 40 days, according to Ellie Mae. Both are down from a year ago, when they took 51 days and 57 days to close, respectively.

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