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Mortgage Credit Tightens as Closing Rate Rises

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As the monthly closing rate of new mortgage applications improved, lenders were more restrictive about who was approved for a loan.

Conventional mortgages accounted for 68 percent of all residential loans that were originated and closed during the month of August 2016.

Conventional share expanded from 65 percent one month earlier and was also much wider than 63 percent in the same month last year.

Those were just some of the details outlined in the August 2016 Origination Insight Report from Ellie Mae Inc. The findings were derived from a sampling of roughly three-quarters of all mortgage applications initiated on Ellie’s Encompass origination platform.

Mortgages insured by the Federal Housing Administration made up 20 percent of the latest production. FHA share thinned from 23 percent in July and 24 percent in August 2015.

No change from the prior month left the share of loans guaranteed by the Department of Veterans Affairs at 9 percent — where it has stood each month since February. VA share was off, though, from 10 percent a year prior.

It took 46 days to close a home loan in the latest report, the same it’s been for the last three months and a day less than it was in the same month last year.

Turnaround during August 2016 was 45 days on conventional closings, 48 days on FHA fundings and 50 days on VA volume.

At 72.3 percent, the closing rate improved from 71.6 percent in July and was far better than 66.3 percent in August 2015.

Refinances had a 67.1 percent closing rate, while the ratio was 76.4 percent on purchase financing.

On conventional loans, the closing rate — which reflects the share of loan applications started in the previous 90-day period that have closed — was 72.6 percent last month. The FHA closing rate was 70.3 percent, and the VA closing rate was two-thirds.

The vast improvement in the closing rate was accompanied by tougher credit standards.

August 2016’s average FICO score was 731, tightening from 727 the previous month and 724 a year previous.

Conventional FICO scores were 747 on refinance loans and 754 on purchase loans. On FHA loans, credit scores averaged 658 on refinances and 687 on purchase-money mortgages, while VA scores averaged 712 on refinances and 708 on purchases.

On all closings, loan-to-value ratios averaged 79 percent, more restrictive than 80 percent in July and 81 percent in August 2015.

LTV ratios were 67 percent on conventional refinances and 80 percent on conventional purchases, while they were 79 percent on FHA refinancings and 96 percent on FHA purchase financing. LTV ratios averaged 88 percent on VA refinances and 98 percent on VA purchases.

Overall debt-to-income ratios averaged 24/37 percent in August 2016, slightly safer than the previous month’s 24/38 percent
and 25/38 percent a year previous.

DTI ratios averaged 24/36 percent on conventional refinancings and 22/34 percent on conventional purchase financing. FHA DTI ratios were 28/44 percent on refinance transactions and 27/42 on purchase transactions, while ratios were 24/39 percent on VA refinances and 24/40 percent on VA purchases.

Refinances represented 43 percent of all closings last month. Refinance share surged from 37 percent a month earlier and a year earlier.

On conventional loans, refinance share was 54 percent in August 2016, while it was 18 percent on FHA loans and a quarter on VA mortgages.

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