Make no mistake: Mortgage credit is still very tight by
historical standards, and only borrowers with the most pristine credit and
healthy down payments can get the lowest rates. But there are signs that the
noose is loosening, if only slightly, in response to lower mortgage volume.
Volume has fallen because rates are rising. Originations were
down nearly 20 percent in the third quarter from the same period in 2012,
according to Mortgage Daily.
Refinances are down more than 50 percent from a year ago because
of higher rates, the Mortgage Bankers Association says.
The drop in volume has lenders looking for more business,
however, and possibly easing up on some standards—or at least removing costly
overlays on loans.
"New originations will be down, and nonprime borrowers will
start to re-emerge," said Tim Martin of TransUnion, which reported a 23
percent drop in borrowers' making late payments in the third quarter versus a
Since the recession began in 2008, the percentage of nonprime
borrowers—or those with a Vantage Score lower than 700, according to Martin—has
fallen from 12 percent of all originations to below 6 percent. That share is
ticking up slightly.
"The origination volumes are starting to lower, so [banks
say] let's start easing up a little bit, take a little bit more risk and help
some folks get some mortgages done," Martin
After tightening in August and September, credit eased slightly
in October, according to a monthly report from the Mortgage Bankers
"Some investors reduced minimum credit scores on certain
products," the report said. "At the same time, other investors
reduced the availability of cash-out refinances and limited other programs to
primary residences in programs which previously allowed for second and investor
homes. The net impact was a slight increase in the index for the month."
That slight easing may again be just for the most creditworthy
borrowers. Options for those with smaller down payments and lower scores are
D.R. Horton, the nation's largest home builder, said the share
of buyers using low-down-payment loans from the Federal Housing Administration
is dropping, as the agency has raised its insurance premiums.
The entry-level builder, which reported fiscal fourth-quarter
earnings Tuesday, said the share of first-time buyers dropped to 43 percent
from 53 percent year over year. The average FICO score for a D.R. Horton buyer
is 723—high by historical standards.
By: Diana Olick
| CNBC Real Estate Reporter
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