Increase in ARM and Refi Shares Reflect Rising Interest Rates

The share of loans that were for
refinancing and those where borrowers opted for adjustable rate mortgages
(ARMs) both ticked up in October
, with the latter garnering the largest share
in recent memory, 8.2 percent.  This was
a full percentage point higher than the September share. According to Ellie Mae’s
Origination Insights Report, the split between refinancing and purchase loans
jumped from 29/71 in September to 32/68 in October.  Both VA and FHA showed an uptick in their
refinancing activity.

Closing rates for all loans
increased to 72.2 percent in October, the highest point this year and up from 71.7
percent the previous month.  Closing
rates on refinances increased slightly, from 64.4 percent to 64.9 percent, and
closing rates on purchases held steady at 76.4 percent for the second
consecutive month.  Ellie Mae calculates
the closing or pull-through rate by reviewing a sample of loan applications
initiated 90 days earlier, in this case the July 2018 applications.  

The distribution of total originations
by product type has varied only slightly thus far in 2018.  Conventional loans and VA loans maintained
their September shares of 65 percent and 10 percent respectively while FHA
loans decreased
from a 20 percent share to 19 percent.

The time to close all loans
increased to 45 days in October, up from 44 days in September. Time to close a
purchase loan increased to 46 days, up from 45 days in September, while time to
close a refinance increased to 43 days in October, up from 42 the month prior.

Overall FICO scores remained steady
at 727 for the second month. LTV held at 79 for the third month while DTI
increased to 26/39.

The average 30-year interest rate
for all loans increased
to 5.01 percent, the highest in 2018 and up from 4.91
percent in September and Jonathan Corr, president and CEO of Ellie Mae
commented, “As interest rates continue to rise, the percentage of Adjustable
Rate Mortgages is increasing as homebuyers are looking to take advantage of the
best rates from their lenders.  Additionally,
FICO scores remain the highest we’ve seen in 2018, indicating that lenders are
not yet loosening credit availability to attract the shrinking refinance
market. We’ll continue to watch this trend into the winter months.”

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

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