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Higher Home Lending Limited to Best Borrowers

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Mortgage Daily

                                                 August 22, 2018

While mortgage originations have recently been higher, the loans are primarily being made to just the best quality borrowers. But ongoing restrictiveness has led to better performance.

The number of outstanding U.S. single-family loans was 53.0 million as of mid-year 2018, TransUnion reported Wednesday in its Q2 2018 Industry Insights Report.

That turned out to be 100,000 fewer loans outstanding than as of three months previous. However, America’s book of residential loans hasn’t changed versus the same date last year.

TransUnion reported that the aggregate unpaid principal balance of mortgages outstanding was $9.0328 trillion as of the most-recent date.

Dividing the reported total outstanding balances by the number of loans outstanding, the average loan amount comes out to $170,431; however, TransUnion reported an average loan amount of $203,887.
A media contact for the company didn’t immediately respond to a request for an explanation about the discrepancy.

Sixty-day delinquency on outstanding mortgages was 1.67 percent, “the lowest level observed since the Great Recession,” TransUnion said. The rate was 1.74 percent as of the first quarter and 1.92 percent as of the second-quarter 2017.

TransUnion highlighted how a decade ago, when the country was sinking into a financial crisis, the rate was 3.87 percent. Delinquency peaked at 7.21 percent in the first-quarter 2010.

Much of the improvement since can be attributed to the abandonment of subprime mortgages.

“The proliferation of subprime mortgage lending in the mid-2000s, among other market factors, led to massive increases in the percentage of borrowers 60+ days past due,” TransUnion said. “The metric, which traditionally had hovered around 2 percent, spiked to nearly 4 percent by Q2 2008 and peaked at over 7 percent in Q1 2010. Following the crisis, the tightening of lending standards has helped push the delinquency rate to much-improved levels.”

Mortgage originations, which are reported on a one-quarter lag, totaled 1,480,816 loans in the most-recent three-month period. The average originated loan amount was $228,162.

Using TransUnion’s numbers, mortgage originators generated $338 billion in loan production, sinking from $413 billion in the fourth quarter. But mortgage originations were modestly higher than $327 billion in the first-quarter 2017.

The report highlighted how credit conditions have tightened since the financial crisis.

“Originations have rebounded from a low observed in Q1 2014, but are still down relative to 2008,” Matt Komos, a research executive at TransUnion, stated in the report. “The downward shift was driven by a large reduction in subprime lending due to lender contraction immediately following the crisis. In fact, subprime share of mortgage originations has dropped by almost 50 percent since 2008. There has also been a shift in the types of products available to consumers relative to before the financial crisis, which may have also created less access for risky populations of consumers in mortgage.”

Komos
added that recent growth in home lending has been coming from the lowest-risk borrowers. The volume of loans to borrowers in every credit tier has fallen except for super-prime mortgages — which exceed the decade-earlier total.

But he noted that lenders have most recently been observed providing greater credit access to the full risk spectrum versus the period from 2010 to 2015.

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