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Loan Quality Rises as Closing Ratios Slip

Mortgage News

The share of applications that are converting to closed loans has fallen two months in a row, with refinances responsible for the latest downturn. But purchase transactions stretched out the amount of time it is taking to process loans. Credit scores and equity levels, meanwhile, improved on new loan production.

Out of all loan applications started during the prior 90 days, 46.2 percent closed last month.

The closing rate slipped from 47.2 percent in May, was down for the second consecutive month and was the lowest on record based on available data back to August 2011.

The declining closing ratio was most evident with refinances, which fell to 38.7 percent from 42.4 percent in May. But 57.8 percent of purchases closed, up for the second month in a row from 56.8 percent.

The origination metrics were outlined by Ellie Mae in its Origination Insight Report June 2012.

The turnaround slowed in June to 47 days from the prior month’s 46 days. It was the third month in a row that the time to close lengthened. The month-over-month slowing was concentrated in purchase transactions, which increased to 46 days from 44 days in May. Refinances sped up to 47 days from 48 days — though refinance turnaround stands 10 days longer than in August 2011.

After falling for three consecutive months, FICO scores on closed loans turned higher in June to 746 from the prior month’s 744.

Also tightening on closed business were loan-to-value ratios, which inched down to 80 percent from 81 percent, and debt-to-income ratios, which were trimmed to 23/35 from 24/35.

The share of originations that were insured by the Federal Housing Administration was 23 percent. FHA share was down for the second consecutive month from one-quarter in May and had been as high as 29 percent in August 2011.

Refinance share was unchanged from 54 percent in May but has fallen significantly from 67 percent in February 2012.

The share of closed loans that were adjustable-rate mortgages fell to 3.3 percent from 4.3 percent in May. It was the lowest share based on the oldest available data since August 2011 — when ARM share was 8.3 percent.

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