Tuesday, June 05, 2018

CoreLogic: Underwriting Loosening for Conventional Conforming Loans

by Calculated Risk on 6/05/2018 05:01:00 PM

Some interesting data and analysis from Archana Pradhan at CoreLogic: Underwriting Loosening for Conventional Conforming Loans

Mortgage underwriting guidelines have loosened in the last couple of years. To expand the credit box to creditworthy borrowers, Fannie Mae began accepting mortgages with loan-to-value (LTV) ratios up to 97 percent in December 2014 and Freddie Mac in March 2015. To further expand access to credit, Fannie Mae raised its DTI ratio level from 45 to 50 percent in July 2017. DTI and LTV ratios along with the credit scores are three important factors in mortgage underwriting. This blog focuses on only conventional conforming (CC) home-purchase loans, which is a majority of the U.S. mortgage market.

Though both DTI and LTV standards have been relaxed, there has been no change in credit score standards. Holding steady at 755, the average credit scores for the homebuyers with CC home-purchase loans in Q1 2018 was unchanged from Q1 2017. However, the average credit score was much higher than the pre-crises level. For example, the average credit score of homebuyers was 705 in 2001, but dramatically rose during the Great Recession and was 755 in Q1 2018. In addition to high credit score standards, those high LTV/DTI loans in Q1 2018 were fully documented and are thus different than the pre-crash high LTV/DTI loans, many of which were low- or no-doc loans.

This data indicated that underwriting continues to be cautious but loosening slightly for conventional conforming home-purchase loans during the Q1 2018 than a year earlier and in early 2000s.