Loan originators have seen a diminishing share of loan applications close lately thanks to refinance business. But the closing rate on purchase financing remains strong. As the Home Affordable Refinance Program kicked into gear earlier this year, average loan-to-value ratios on conventional refinances shot up. But more recently, as mortgage lenders have faced an onslaught of refinance activity, they have been turning down applications from borrowers with higher credit scores and lower LTV ratios.
The average FICO score on all closed loans was 748 in July, up from 746 the previous month. Average scores have ranged from a low of 741 in August 2011 to a high of 750 this past February.
On denied applications, the average credit score was 710, jumping from 701 in June and likely reflecting a rush of refinance activity that enabled lenders to weed out the lowest quality business. Average scores on denied loans had been as low as 696 a year ago.
The findings were outlined in the Origination Insight Report from Ellie Mae for July 2012. Pleasanton, Calif.-based Ellie says its statistics are derived from a sampling of mortgage applications run through its mortgage management software and transaction platform.
The average credit score on refinance loans insured by the Federal Housing Administration climbed to 719 in July from 716 a month earlier. During the past year, FHA refinance scores peaked at 724 in March.
There has been little change in credit scores on FHA purchases, which averaged 701 in July, unchanged for the past two months and have only been as high as 704 a year ago.
The average LTV ratio on all funded business was unchanged from June at 80 percent. Average LTVs have ranged from 76 percent to 81 percent over the past 12 months.
On denied applications, LTVs have recently been on the decline, falling for the second month in a row to 85 percent last month from 87 percent in June.
Looking at just closed conventional refinances, the average LTV didn’t deviate from 65 percent between August 2011 and March 2012. But it jumped to 69 percent in April and averaged 70 percent last month. The increase likely reflects increased HARP activity.
A similar trend developed for denied conventional refinance applications. The average LTV stayed within a narrow range of between 75 percent and 78 percent from last August through this February, while the range has jumped to between 82 percent and 87 percent since then.
Ellie Mae Chief Operating Officer Jonathan Corr noted, however, “The percentage of closed conventional refinances with LTVs of 95 percent-plus declined for a second consecutive month to 8.7 percent in July from 10.2 percent in June, perhaps indicating that HARP 2.0 activity may be slowing.”
July’s average debt-to-income ratio on all closed loans was 23/34 percent. There has been little recent variance over the past year.
It was the same for denied applications, with the average DTI ratio of 28/44 percent not much different in any of the past 12 months.
During July, loan originators closed 45.8 percent of all loan applications in process that had been started within the prior 90 days, losing ground over June’s 46.2 percent. Last month’s closing ratio was the lowest based on data back to November 2011 — the oldest available.
The deteriorating closing ratio was concentrated in refinance activity, with the refinance closing ratio falling for the third consecutive month to 37.9 percent from 38.9 percent a month earlier.
But the purchase closing ratio climbed to 58.7 percent from 57.8 percent, was the highest it’s been since February and was at the second-highest level during the nine months that the data has been published. Corr speculated that the rise might be “a sign that the purchase market may also be showing some traction.”
The average loan took 48 days to close from application to funding last month, adding a day to June’s turnaround and increasing for the fourth consecutive month. The refinance turnaround was 48 days, while purchase loans took 47 days.
“The combination of extremely low interest rates and a strengthening purchase market pushed out closing times for both refinance and purchase loans in July,” Corr explained. “These time frames are similar to what we saw in January of last year, when a surge of activity challenged the industry’s capacity.”
July’s refinance share climbed to 58 percent from 54 percent in June.
FHA share inched up to 24 percent from June’s 23 percent share, though it still stands at the second-lowest level during the past year.
The share of business that was adjustable-rate fell to its lowest level based on the oldest data available from Ellie from August of last year:Â 3.1 percent. The diminishing adjustable-rate mortgage share reflects hyper-low fixed rates. ARM share was as high as 8.3 percent in August 2011.
Freddie Mac released a refinance product transition report Tuesday that indicated 97 percent of borrowers who refinanced their existing ARMs during the second quarter moved into a fixed-rate mortgage. Fixed-rate 30-year loans were used by 63 percent of borrowers refinancing out of ARMs, while 13 percent moved into fixed-rate 20-year mortgages and 21 percent opted for a 15-year fixed-rate loan. The rest chose a hybrid ARM, and none refinanced into a one-year ARM.
Fewer borrowers are opting for a 15-year loan, with the 15-year share dropping to 15.3 percent — the lowest level in any month reported by Ellie. The share had been as high as 22.8 percent in October 2011.
Freddie’s report indicated that two-thirds of second-quarter refinancing borrowers with 30-year fixed-rate loans kept the loan term the same, while 12 percent cut their terms to 20 years and 21 percent went with a 15-year loan.
Eighty-six percent of 15-year borrowers in Freddie’s report kept the same term.
