The new year began with lending standards significantly looser than they have been in years, but nearly half of all applicants for a mortgage are still rejected. Some 54.3 percent of all applications were approved in December compared to 54.7 percent a year. The best month to apply for a loan last year was February, when 56.8 percent were approved.
Median FICO scores improved steadily for all borrowers in 2013, according to the December Origination Insight Report from Ellie Mae. The average FICO score for a first-lien loan closed in December was 727, down from 729 the previous month and 748 a year ago. Just under one-third of loans-31 percent-had FICO scores of less than 700 in December, up 10 percentage points from December 2012, according to Ellie Mae.
FICO standards for purchase loans also loosened in 20013. Median score for FHA purchase loans fell from 699 a year ago to 690 in December. For conventional purchase loan borrowers the median FICO score fell from 761 to 756.
In a separate data report, economists at the National Association of Realtors found that the average FICO scores for conventional and FHA financed, purchase mortgages closed in December were 756 and 690, respectively. Credit overlays remain significantly higher than the pre-boom period when average FICOs were 30 to 40 points lower for conventional and FHA mortgages. Several important reforms and regulatory changes remain that have kept conditions tight. New purchase applications for conventional and government financing rose, by 12.6 percent and 9.0 percent, respectively.
The average loan-to-value (LTV) ratio for a loan closed in December was 82. LTV, hovered between 79 and 82 all year. Debt-to-income ratio (DTI) also ended the year with a high-39 percent. Both LTV and DTI are critical factors in determining loan approvals, and higher KLTV ratios may reflect home price increases during the year.
Purchase loans made up a greater share of December’s closed loans than refinance loans, following a trend started in the second half of the year.
Purchase loans accounted for 54 percent of loans, while refinances accounted for 46 percent. The increase in purchase loan market share reflects a significant shift from a year ago when purchase loans made up just 31 percent of loans and refinances accounted for 69 percent.
“HARP [Home Affordable Refinance Program]-related refinancing activity increased for the second month in a row, as conventional refinances at 95 percent-plus LTV rose to 12.1 percent in December, the highest they’ve been since August 2013,” said Jonathan Corr, president and COO of Ellie Mae.
Conventional loans accounted for 69 percent of loans originated in December, while Federal Housing Administration-backed loans accounted for about 20 percent, unchanged from November.
The average rate for a 30-year fixed-rate loan closed in December was 4.59 percent, up from 4.53 percent in November. The average rate for a 15-year fixed-rate loan was 15.1 percent, up from 14.5 percent in November. The average rate for an adjustable-rate mortgage loan closed in December was 6.6 percent, up from 5.8 percent in November.
Loans originated in December took an average 43 days to close, up slightly from 42 days in November but down from 55 days a year ago. Purchase loans took longer to close at 46 days, while refinance loans closed in about 40 days, according to Ellie Mae. Both are down from a year ago, when they took 51 days and 57 days to close, respectively.