In the glory days of the housing boom, “pulse loans“ were popular.  (If you had a pulse, you could get a loan.)  Since those days, mortgage approval rates to buy a home have stayed roughly the same; in 2004, some 14.4 percent of purchase loan applications were turned down compared to 13.2 percent in 2014.[1]

One might assume that access to credit has remained the same, yet anyone who has been within miles of a newspaper knows it’s much hardener to get a loan today.

In fact, the number of purchase mortgage originations have declined significantly. Compared to a decade ago, single-family home-purchase originations have declined significantly and so have the number of applications. There were 11.7 million loan applications for single-family home-purchase mortgages in 2005, which plunged to 3.6 million in 2011 (lowest in the decade), and rose to 4.6 million in 2014.

Credit scores for applications and originations have risen and fallen in tandem over the past ten years.

The decline in the number of applications from 2005’s peak to 2014 represents an overall drop of 60 percent (Figure 1). Similarly, the number of loan originations to purchase a single-family home fell from 7.4 million in 2005 to 3.2 million in 2014.

Only one factor could explain the simultaneous decline in applications and total approvals.  Add into the mix the tightening of lending standards and lack of change in denials rates over one of the most turbulent decades in the recent history of housing; only one conclusion can be drawn.

Borrowers are getting their collective acts together.

When anybody could get a mortgage, nobody put much effort into sweating their FICOs or tightening their belts to pay down debt before buying a house.  Today the message preached by homeownership education programs, personal finance gurus, lenders and real estate professionals is being.  Don’t apply unless your numbers comply.

Now there’s hard data to prove attitudes towards obtaining a mortgage have done a three-sixty in ten years.

New research from CoreLogic’s June MarketPulse report by Ardhana Pradhan found that credit score distributions have shifted from 2005 to 2015 for both applications and originations.  There are far fewer credit scores with low credit scores, and the share of applications and originations with less than a pristine credit score has also declined.

The difference is more pronounced for applications than for originations. The share of credit scores below 700 for applications has declined and has been offset by a greater share of credit scores above 740.

From a credit space perspective, the similarity of the two density distributions for 2015 suggests that lenders are largely meeting the demand of borrowers applying for a loan. Thus, the observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity.

“Consumers are cautious more than they have been in the past and thus self-sidelining of cautious or discouraged consumers makes it appear as if credit is tightening. The policy prescriptions are quite different if the drop in originations is attributable to a lack of demand more than to tight underwriting. For example, more consumer education such as counseling and financial literacy programs could be as or more successful in raising origination levels than introducing new lending products with lower credit standards,” wrote Ms. Pradhan.