Mortgages Close Faster; Credit Eases
Mortgages are closing more quickly, while credit requirements for obtaining a loan have eased significantly over the past year, according to a new industry report.
Home loans closed in February took an average of 41 days to complete, down from 45 days the month before and 50 days in February 2013, according to figures released today by the mortgage automation and software firm Ellie Mae. Meanwhile, the average FICO score for approved mortgages fell to 724 for loans closed last month, down from 745 one year ago.
"Credit requirements remained steady month over month, but there has been significant loosening compared to where we were a year ago," said Jonathan Corr, Ellie Mae president and COO. He noted that 33 percent of all mortgages closed in February had a FICO score below 700, compared to 24 percent a year a year earlier.
Biggest easing for FHA loans, refinancing
For borrowers seeking to refinance an FHA mortgage, credit eased even further. The average credit score on FHA refinances closed in February was 669, down from 712 in February 2013. Credit eased only slightly for FHA home purchasers though, with the average FICO score on approved loans down to 686, compared to 699 a year earlier.
Despite the apparent easing, it appears that borrowers still need excellent credit to buy a home with a conventional Fannie/Freddie mortgage, however. The average FICO score on conventional home purchases last month was 755, barely changed from the 761 level of one year ago. For conventional refinancing, the average score was 730, down from 760 in February 2013.
So it would appear that where credit has eased, it's been for borrowers seeking to refinance - precisely the market that's been drying up for lenders as mortgage rates have risen. Which is a mixed blessing for those who are still looking to refinance.
Approval rate remains low
The overall mortgage approval rate remains somewhat discouraging. Only 55 percent of all mortgage applications are being approved within 90 days, according to the company's figures. That's barely changed from one year before. It breaks down to 62 percent of home purchase applications and 47 percent of refinance applications - suggesting that many of those currently seeking to refinance are those with diminished credit.
The company's data shows that financial requirements for obtaining a mortgage have eased somewhat. The average loan-to-value of mortgages closed in February was 82 percent - equal to an 18 percent down payment - compared to 80 percent in February 2012.
Income requirements have also softened a bit, with the average debt-to-income ratio on loans closed in February being 25/38, compared to 23/35 one year earlier. The first figure in each pair is the percentage of income going toward mortgage debt, the second the percentage toward total debt.
The data is pulled from a sampling of mortgage applications run through Ellie Mae's automated systems, which processed 3.5 million applications in 2013. As such, the company believes it is a fair representation of the U.S. mortgage market overall. Ellie Mae is a private company with no government affiliations, unlike similarly named entities such as Fannie Mae and Ginnie Mae.