As Rates Rise, Origination Trends Toward Looser Credit

Ellie Mae reported today that the refinancing share of loans has dropped 15 percentage points since rates first began to escalate in May.  The company's August Origination Insight Report shows that 43 percent of August's closed loans were for refinancing compared to 47 percent in July and 58 percent in both April and May.  Refinancing accounted for a 62 percent share of all closed loans in 2012.

Seventy percent of closed loans were financed conventionally, down from 72 percent in both July and July.  FHA lending accounted for 18 percent of closings compared to 19 percent in each of the three previous months.  The average conventional share in 2012 was 69 percent and the average FHA share was 23 percent. 

The average FICO score for closed loans dropped to 734 in August, the lowest level since Ellie Mae began tracking them and both loan-to-value (LTV) and debt-to-income (DTI) ratios rose slightly.  Jonathan Corr, president and chief operating officer of Ellie Mae said this indicates a continuation of the credit easing trend.

Corr continued, "Purchase loans continued to gain share in August, climbing 4 percent to 57 percent of all loans.  This was the highest percentage of purchase loans since we began tracking this data in August 2011.

"HARP-related high LTV refinances (95 percent or more) continued their resurgence, moving up from 11.1 percent in July to 13.4 percent in August," he added.

The time required to close a loan, regardless of purpose, fell significantly from July to August.  It took an average of 41 days to close a loan for refinancing and 42 for a purchase money mortgage compared to 48 days and 46 days respectively in July.  During the last three months of 2012 loans for refinancing were taking well over 50 days to close. 

Ellie Mae compiles a lender "pull-through" rate by reviewing a simple of loan applications initiated 90 days prior to calculate an overall closing rate.  The rate in August was 53.1 percent, down from 55.4 percent in July.  The closing rate for purchase mortgages was essentially unchanged from July at 61.5 percent, however the closing rate for refinances dropped from 51.3 percent in July to 46.8 percent.

Ellie Mae draws its data from a sample of the approximately 20 percent of all U.S. loan applications that flow through its mortgage management software and network.