Loans originated in the third quarter were among the highest in credit quality since 2000, according to CoreLogic.
Mortgage credit risk remained low when compared with the third quarter of 2015, CoreLogic reported in its inaugural Housing Credit Index.
The new index measures credit risk by using loan attributes collected from servicing data. An increase in the index signifies that new single-family loans have a higher degree of credit risk.
The six attributes used for the index include borrower credit score, loan-to-value ratio, debt-to-income ratio, documentation level of the borrower’s economic condition, occupancy and property type. CoreLogic chose 2001 as the base year for the index to capture the loosening of credit leading up to 2006 and the subsequent tightening as the foreclosure crisis began to play out.
“Mortgage originations over the past 15 years have exhibited a huge swing in credit tolerance,” CoreLogic Chief Economist Frank Nothaft said in a news release. “While low down payment and high payment-to-income products are available today, borrowers generally need good credit scores to qualify. This may be a factor that has led to the drop-off in applications from those with lower credit scores during the last few years.”
The average credit score for homebuyers rose 5 points from a year earlier to 739. The share of buyers with a credit score below 640 was a fourth of what it was at the beginning of the period covered by the index in 2001.
Similarly, the LTV for borrowers dipped by more than 1 percentage point year over year to 85.6% from 86.8%.
Meanwhile, the average DTI for homebuyers fell only slightly in the third quarter of 2016 when compared with the previous year, decreasing to 35.4% from 35.7%.