Loan Processing Time Up 25% Over 2011, Refi's to Blame

The time needed to close a mortgage loan has increased by almost 25 percent over the last year, from an average of 40 days to 49 and it was refinances that drove the change.  According to the Ellie Mae Origination Insight Report for August released this morning, the time needed to close a loan for purchase increased from 43 days in August 2011 to 47 days in August 2012 while during the same period the average time required to close a refinancing increased by two full weeks to 51 days.

Sixty-one percent of loans closed in August were for the purpose of refinancing compared to 58 percent in July.  The 61 percent/39 percent refinancing purchase split in August was identical to that of one year earlier.  FHA loans represented 21 percent of all loans closed in August and conventional loans had a 70 percent share.  The FHA share was down 8 percentage points from a year earlier, reflecting the increase in conventional loans.

To get a meaningful view of lender "pull-through," Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the May applications) to calculate a closing rate for August 2012, which was 47.8%, compared to 45.8% in July 2012.  The closing rate for refinancing was 40.9 percent and for purchases 60.1 percent.

"The 30-year note rates on closed loans continued to decline, dropping from 3.870% in July to 3.763% in August 2012. August's rate was down nearly 100 basis points from the same time last year and the lowest point since we began tracking," said Jonathan Corr, chief operating officer of Ellie Mae. "The percentage of ARMs also continued its decline to 2.7% in August 2012, the lowest point since we began tracking in August 2011, when the percentage of ARMs was 8.3%.

Loan quality continues to increase.  An average closed loan in August had a FICO score of 750, a loan-to-value (LTV) ratio of 79, and a debt-to-income (DTI) ratio of 23/34.  One year earlier those numbers were 741, 79, and 25/36.  At the same time, denied loans had an average FICO score of 708 in August, an LTV of 88, and a DTI of 27/43 where one year earlier those numbers were 696, 82, and 29/45.   

 "The percentage of refinances at 95%-plus LTV dropped for the third consecutive month, from 10.2% in June and 8.7% in July to 7.74% in August, a possible sign that HARP 2.0 continues to be cooling off, which is in line with what the Federal Housing Finance Agency has been reporting," Corr added.

Ellie Mae's data covers approximately 20 percent of U.S. mortgage originations.  The Origin Insight Report comes from an approximately 33 percent sample of all mortgage applications originated on Ellie Mae's proprietary platform.