More Buyers Turning to ARMs to Achieve Ownership

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The share of December originations that were
adjustable rate mortgages (ARMs) was the highest since Ellie Mae began tracking
them in 2011 the company said in its December Origination Insight Report
As mortgage rates rose, the share of ARMs reached 9.2 percent, up from
8.9 percent in November.  The share in
December 2017 was 5.6 percent.

“With the strong demand for housing
and the rapid increase in property value appreciation, more consumers are
turning to Adjustable Rate Mortgages in order to gain additional flexibility
when competing for a home,” said Jonathan Corr, president and CEO of Ellie Mae.
“This is another key indication of how demand has outpaced supply in the
housing market as consumers pursue their dream of homeownership.”

Mortgages for home purchase made up
70 percent of originations in December. This is 1 percentage point lower than
the share in November. Sixty-four percent of originations were conventional
loans while FHA made up 20 percent and VA loans 11 percent. This was a 1-point
shift away from the conventional loan share in November while FHA and VA loans
each picked up 1 point.

The time to close all loans
increased to 47 days in December, up from 46 days in November. Time to close a
purchase loan decreased to 47 days, while time to close a refinance increased
to 44 days.

Overall FICO scores dropped one
point to 726. LTV held at 79 for the fifth month and DTI held at 26/39.

The average interest rate for
30-year loans originated during the month was 5.17 percent, up from 5.15 percent
in November. The FHA average was 5.20 percent, the Conventional rate was 5.19
and the VA’s was 5.01 percent.

The closing rate for all loans rose
from 70.1 percent in November to 71.4 percent in December and was higher across
all loan types. Ellie Mae bases the closing rate on a sample of loan
applications initiated 90 days earlier, in this case the September 2018
applications.

The Origination Insight Report
details aggregated anonymized data pulled from Ellie Mae’s Encompass
origination platform. It focuses on loans that closed in a specific month and
compares their characteristics to similar loans that closed three and six
months earlier.

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