Lenders Get Even Tougher on Credit

A new report based on data from mortgage applications processed by one of the leading mortgage management software platforms suggests that over the past eight months it has been even tougher to get a loan with less than stellar credit. Average credit scores are up ten points, and both debt-to-income and loan-to-value ratios are down slightly since August.

“In February, it appears that lenders continued to be very cautious in terms of credit quality, down payments and valuations,” said Jonathan Corr, chief operating officer of Ellie Mae, Inc., a provider of mortgage management software systems. “The average credit score on closed loans was 750 last month, up from 740 six months ago; meanwhile, the average loan-to-value ratio was 76 percemt, a decrease of 3 percent from August’s average.

“Last month, if your FICO score was below 720 or you had a down payment or equity of less than 25%, there was a good chance that your refinance application for a conventional loan was denied or you were offered a significantly less attractive interest rate. The average DTI ratio for such a denial in February was 27/43,” Corr said.

The Ellie Mae Origination Insight Report also found that purchase mortgages has decreased steadily since August, accounting for only one-third of all mortgages approved in February, down from 39 percent in August. The market share of FHA loans has stayed steady since November, at 25 percent of all purchase loans. Average credit score for approved FHA purchase loans was only 701, a slight decline from 704 in August.

“The timeline from application to closing for the average loan was 44 days in February and 43 for a refinance, a 10 percent and 16 percent increase, respectively, over where the industry was six months ago,” Corr added. “This tracks with the increase in demand that we saw at year end.”