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Subprime Mortgage Originations Growing

Subprime mortgage lending was up last year as home lenders refined how they determine which borrowers should be approved for a loan.

From Jan. 1 through Oct. 31 of last year, total residential first mortgage originations by all U.S. lenders came to an estimated $1.56 trillion.

It turns out that the nation’s mortgage production improved compared to the same period last year, with total volume climbing 51 percent.

The details were reported in the National Consumer Credit Trends Report from Equifax.

The number of first mortgages originated year-to-date Oct. 31, 2015, totaled 6.64 million, rising 37 percent.

During the same period,
there were more than 312,000 first mortgages to subprime borrowers
closed for $50.7 billion.
Borrowers whose Equifax Risk Score is no higher than 620 are
considered to be subprime.

The number of subprime first mortgages that were originated increased by 28 percent compared to the same period a year earlier, while subprime first mortgage production has expanded by 45 percent from a year earlier based on the total balances involved.

Equifax Chief Economist Amy Crews Cutts explained in the report that
credit standards are becoming more accommodating to meet market demand.

“At the same time, lenders are focusing more attention on evaluating consumers’ ability to repay,” Crews Cutts continued. “This has led to a much larger reliance on third-party data verifications that enable lenders to more accurately vet subprime borrowers much earlier in the origination process.”

On just home-equity loans, 652,200 transactions were closed during the first 10 months of last year for $21.9 billion. Dollar volume was up 20 percent on a year-over-year basis, while the number of HELs rose by a quarter to the highest level since 2008.

Subprime HEL originations exceeded $1.4 billion during the 10 months ended Oct. 31, up by a third from the same 10 months in 2015.

The 33 percent year-over-year increase fell short of the 45 percent increase on subprime first mortgages
because of weakness in purchase-money seconds, according to Crews Cutts.

“Mortgage insurance is a viable alternative for home-equity loans that might be used as piggy-back financing for part of the down payment on the first mortgage and may explain why we are not seeing similar proportionate increases in subprime home equity loans,” she explained.

HELs outstanding closed out 2015 at $132.7 billion.

There were 1.17 million home-equity lines of credit with credit limits of $121.6 billion originated during the 10 months ended Oct. 31, 2015.

By amount, HELOC production was up 20 percent from a year prior to a seven-year high. The increase was 12 percent based on the number of credit lines — the highest since 2008.

HELOC balances outstanding finished 2015 at $493.7 billion, while total HELOC credit limits closed out October 2015 at $608 billion — up seven percent from the same point in 2014.

The rate of 90-day delinquency, including bankruptcies and foreclosures, on all first mortgages closed out December 2015 at 1.77 percent — the lowest level since September 2007.

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