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Mortgages in 2014: Winners and Losers

More and more home buyers are finally getting the financing they need, according the year-end Elli Mae Originations Insights Report. But not everyone fared so well.

Two out of three applications for a mortgage were approved in November and December, the highest approval rate in years. Some 67.1 percent of applications were approved, up from 31 percent two years ago and well above the 2014 annual average of 63.3 percent.

Even more importantly, today more people with good but not perfect credit scores are getting mortgages to buy a home. The average FICO score for all loans in 2014 was 726, 12 points lower than 2013 and 22 points lower than it was 748 in 2012. However, the average FICO for a mortgage still higher than the median average FICO score of 692.

FHA borrowers with even lower FICO scores are more likely to get a mortgage approval than conventional borrowers. The average FICO score to buy a home in 2014 was only 684, down from 695 in 2013.

Yet there’s bad news for student loan debtors. Debt to income requirements for purchase loans barely budged in 2014. Average front end ratios for purchase loans were the same in 2014 as 2013: 24 percent. Back end ratios loosened slightly, rising only from 36 to 37 percent. The data may reflect the impact of the QM Rule, implemented in 2014, which limits DTI ratios to 43 percent. For first-time buyers saddled with high student loan debt, this is not good news.

Home buyers applying for conventional financing saw very little improvement in average FICO scores during the year. FICO scores remain very high compared to other loan types. In 2014 the average FICO was 755 for conventional loans, far above the average of 726 for all loan types. By comparison, the average FICO for conventional purchase loan borrowers was 759 in 2013 and 763 in 2012. In two years, the average FICO score for approved conventional purchase loans has changed only 8 points.

Borrowers with the credit and down payment for a conventional loan were also more likely to get approved. A higher percentage of conventional purchase loan applications were approved than any other loan type. In December, 62.8 percent were approved compared to 63.2 percent for FHA loans and 7.1 percent for all purchase loans.

High mortgage insurance premiums have driven many buyers away from FHA in recent years and they chose conventional loans instead despite the higher FICO levels and interest rate requirements. In December, only 17 percent of all mortgages were FHA despite its low 3.5 percent down payment, compared to 67% for conventional loans. The Administration’s decision to greatly reduce mortgage insurance premiums, which took effect January 26, should make it easier for more first-time buyers to use FHA.

Plummeting interest rates in the first two weeks of December drove the refinance share of mortgage activity increased to 66 percent of total applications, the highest level since December 2013, according to the Mortgage Bankers Association’s December 13 applications survey. However, Ellie Mae reported that for the month as a whole purchase mortgages accounted for a greater market share of applications: 56 percent for purchase compared to 43 percent for refis in December.







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