Could the end of the refinancing boom be stimulating slightly more favorable mortgage terms for home buyers? The latest comprehensive study of activity in the market suggests the answer could be yes.
Ellie Mae Inc., a mortgage technology firm in Pleasanton, Calif., conducts a survey involving a massive, nationally representative sample of loans closed each month. Its August findings point to a gradual easing on credit scores for borrowers.
Consider these hard numbers provided by Ellie Mae Chief Operating Officer Jonathan Corr:
•Last month, 30% of all successful applicants for home mortgages had FICO credit scores less than 700, compared with 15% a year earlier. That doubling in just 12 months is significant and tells prospective buyers: Just because you don’t have stellar scores, you can still be approved if your application shows compensating strengths such as steady income, solid recent payment performance on credit accounts, moderate household debt loads and adequate financial reserves in case you run into a rough patch. (FICO scores run from 300 to 850; higher scores signify a lower risk of default for the lender.)
•Average FICO scores are down across the board. Conventional Fannie Mae–Freddie Mac scores for approved applicants dropped a point from July to August to 758. That’s still high in historical terms but down from 764 in November. Federal Housing Administration-insured loans for buyers continued their slow decline, hitting 695 last month versus 702 in April 2012. The biggest drops in scores have been on Fannie-Freddie refinancings as recent interest-rate jumps have scared away applicants. Approved borrowers in August had average scores of 737 compared with 746 in July.
Corr said in an interview that many lenders are seeing refi applications decline sharply, and this may be pushing them to be more flexible and competitive on loans for home purchases.
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