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Lending Standards, Turn Times Fall on Waning Refis

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Lending standards loosened and turn times shortened last month as refinance share diminished and refinance closing rates tumbled.

Of all mortgage loan applications that were started during the previous 90-day cycle, just 53.1 percent closed in August.

The closing rate deteriorated from the previous month, when it was 55.4 percent. However, an improvement was made compared to the 47.8 percent closing rate reported for August 2012.

Those findings were reported Wednesday by Ellie Mae based on transactions that were processed through its systems.

The deterioration reflected refinance activity, with the closing rate on just refinance loans tumbling to 46.8 percent from 51.3 percent in July. Refinance closing rates were likely impacted by rising interest rates — pushing unlocked prospects out of the market.

The closing rate on purchase-money loans, however, inched up to 61.5 percent from 61.4 percent.

At 41 days, the amount of time it took to close loans improved by six days compared to July and was eight days faster than in August 2012.

Turnaround on refinances sped up to 41 days from the prior month’s 48 days, while purchase financing time frames shortened to 42 days from 46 days.

Borrowers had an average FICO score of 734 last month, lower than 737 in July and 750 a year prior.

At the same time, average debt-to-income ratios rose to 24/37 from 24/36 a month earlier and 23/34 in August 2012.

Even average LTV ratios rose — to 82 percent from the prior month’s 81 percent and 79 percent in the same month last year.

However, on refinance loans insured by the Federal Housing Administration, average LTV ratios slipped to 85 percent from 86 percent in July, while the average rose to 74 percent from 72 percent on conventional refinances.

The higher conventional refinance LTVs reflected a bigger share of transactions with 95 percent LTVs — rising to 13.4 percent from 11.1 percent a month earlier and 7.74 percent a year earlier.

Average credit scores on all types of denied applications fell to 696 from 702 in July, while DTIs and LTVs were unchanged at 28/44 and 84 percent, respectively.

FHA loans represented 18 percent of business during the latest month. FHA share was off from 19 percent a month earlier and 21 percent a year earlier.

Refinances accounted for 43 percent of August activity, falling for the third consecutive month and down from 47 percent in July. The year-earlier refinance share was 61 percent.

Falling refinance share pushed the purchase financing share of business to 57 percent — the highest level on record based on Ellie’s data back to August 2011.

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