Credit Standards Loosen, Refi Boom to Blame


Ellie Mae has picked up indications of what it says it
will be watching as a possible trend in the data from its November Origination
Insight Report.  The company notes that
the share of refinancing originations during the month remained steady at 39
percent even with a slight uptick in interest rates.  However, the FICO scores of borrowers who
were refinancing declined slightly across all loan types. 

For all loans, the FICO scores declined from an
average of 724 in October to 722, but the lender breakdown shows the change was
due almost entirely to refinances.  For
example, FICO scores were unchanged for FHA purchase loans, but declined from
645 to 640 for refis. Conventional purchase loans saw FICO scores decline by 1
point but refis by 2. VA’s purchase loan average rose 1 point but its refi loan
FICOs were 2 points lower.  

Mae president and CEO says this modest drop in the overall FICO average, but
especially among refinances indicates “that lenders may be loosening credit standards to attract the dwindling
refinance market. This is certainly a trend we will continue to watch into the
winter months,” he said.

The distribution of loan
originations across loan types remained unchanged for the third straight month.
 Conventional loans had a 66 percent
share, FHA loans 20 percent, and VA loans 10 percent.  It was also the third month for the average
closing time to hold at 43 days.

The closing rate for all loans rose
from 70.4 percent in October to 70.9 percent with purchase loans closing at a
75.4 percent rate, up from 75.2 percent and the rate for refinancing rising
from 63.6 percent to 65.1 percent. While Ellie Mae does not comment on the
increased pull-through rates for refinancing, it could provide substantiation
of their theory about FICO scores. Ellie Mae calculates the closing rate on a
sample of loan applications initiated 90 days earlier, in this case, the August
2017 batch.

The Origination Insight Report mines
data from a sample of approximately 80 percent of all mortgage applications
that were initiated on Ellie Mae’s origination system.  The company states its report is a strong
proxy of the underwriting standards employed by lenders across the country.


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