Make us your home page
Instagram

The Nation's Housing: Lenders keeping mortgage stands high

Lenders not easing mortgage standards

WASHINGTON — With 30-year mortgage rates hitting new lows and recent borrowers' payment performance the best by far in decades, you'd think that banks and lenders might be loosening up on their hyper-strict underwriting standards.

But new national data from inside the industry suggest this is not happening. In fact, in some key areas, standards appear to be tightening even further, and the time needed to close a loan is getting longer.

The average FICO credit score on all new loans closed in August was 750, nine points higher than a year earlier, according to Ellie Mae Inc., a Pleasanton, Calif.-based mortgage technology firm whose software is used by many lenders. The sample represents about one-fifth of all new loans — roughly 2 million mortgages.

At Fannie Mae and Freddie Mac, the average FICO score was even higher. For refinancings in August, the average approved borrower had a 769 FICO score, up six points from August 2011. The average score for borrowers purchasing homes was 763, one point higher than the year before.

FICO scores are used by virtually all mortgage lenders to gauge the credit risk posed by a borrower. Scores range from 300 to 850, with low scores representing higher probability of default, high scores indicating low risk. Fair Isaac Co., developer of the scoring model, says 78.5 percent of all consumers currently have scores between 300 and 749. Barely one in five, in other words, scores high enough to meet today's averages at Fannie and Freddie.

Other signs of how strict standards have become:

• The average purchaser using a Fannie-Freddie loan made a down payment of 21 percent in August and had a squeaky-clean debt-to-income ratio — with total monthly debt payments, including the mortgage — amounting to just 33 percent of income. Refinancers had an average equity stake in their houses of 30 percent.

• In August, according to Ellie Mae's survey, the average FICO score for Federal Housing Administration (FHA) refinancers was 717, up 11 points from the year earlier. FHA home purchasers had average scores of 700 — four points below what they were 12 months ago — but still far beyond historical norms. FHA officially accepts FICOs as low as 500 and requires 10 percent down payments for borrowers below 580 but does little business at these score levels.

• In addition to — or maybe because of — the tougher standards, the mortgage process itself appears to be slowing down. The average time from application to closing for all loans during the time cycle in the Ellie Mae survey was 49 days, nine days longer than the previous August. For refinancings, the average processing time was 51 days, up from 37 days a year earlier.

What's going on here? Given the Federal Reserve's repeated interventions to lower the cost of money to banks, why are they keeping their credit requirements so high? Are there any prospects for relief for prospective buyers who simply don't have 20 percent or 30 percent to put down and don't have elite-bracket FICO scores?

Doug Duncan, the chief economist for Fannie Mae and former chief economist for the Mortgage Bankers Association, acknowledges that big banks — and Fannie and Freddie — are seeing their highest-quality "books of business" in decades, thanks in large part to their strict credit standards and documentation rules.

He believes, however, that the underwriting cycle could start to loosen as banks begin to pare down their pricing add-ons, their fears of costly "buy backs" of existing loans recede, and rules on mortgage lending are unveiled by the government.

The Nation's Housing: Lenders keeping mortgage stands high 09/29/12 [Last modified: Saturday, September 29, 2012 4:30am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post - Writers Group.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. As Dow hits new high, Raymond James Financial reports record financial gains

    Banking

    On the same day that the Dow closed at new highs, investment firm Raymond James Financial reported record revenues and earnings for its fiscal third quarter that ended June 30.

    Raymond James Financial CEO Paul Reilly unveiled record quarterly revenues and earnings for the St. Petersburg-based investment firm. [Courtesy of Raymond James Financial]
  2. Florida GDP growth in first quarter 2017 ranks 21st among states, still outpacing U.S.

    Economic Development

    Florida's gross domestic product or GDP rose 1.4 percent in the first quarter, slightly faster than the nation's growth of 1.2 percent and placing Florida 21st among the states for growth rates, according to the U.S. Bureau of Economic Analysis.

    Not too hot. Not too cold.

    These Jackson Square Townhomes began hitting the west Hillsborough County market late last year and continued to be sold into the first quarter of 2017. The real estate sector was the biggest driver of Florida's gross domestic product, which rose 1.4 percent in the first quartrer of 2017.  [JAMES BORCHUCK   |   Times]
  3. A new app will help you find your favorite Tampa Bay food trucks

    Food & Dining

    What's new: Food tech

    Local food businesses are embracing new technologies and partnerships to bring us extra deliciousness.

    Michael Blasco of Tampa Bay Food Trucks says that everyone always asked about an app to help find their favorite food trucks. There is, available for iPhones and Droids.
  4. Another Pinellas foreclosure auction fools bidders, raises questions

    Real Estate

    For the second time in six weeks, a company connected to lawyer Roy C. Skelton stood poised to profit from a Pinellas County foreclosure auction that confused even experienced real estate investors.

    A Palm Harbor company bid  $112,300 for  this Largo townhome at a foreclosure auction July 21 not realizing the auction involved a second mortgage, connected to lawyer and  real estate investor Roy Skelton -- and that the bank could still foreclose on the  first mortgage.
[SUSAN TAYLOR MARTIN   |   Times]
  5. Clearwater-based USAmeriBank acquired by New Jersey bank in $816 million deal

    Banking

    CLEARWATER — USAmeriBancorp, Inc., based in Clearwater, is being acquired by New Jersey's Valley National Bancorp in an $816 million deal, it was announced today.

    Joe Chillura, CEO of USAmeribank, shown inside a branch in Ybor City in this file photo.
[KATHLEEN FLYNN l Times]