In what might be good news for Realtors but bad news for lenders, purchase loans will soon account for a bigger piece of the mortgage loan origination pie than refinancings, a report out today from Ellie Mae suggests.
Ellie Mae said purchase loans accounted for 49 percent of mortgage originations in June, up from 42 percent in May and 31 percent in December 2012.
As mortgage rates rise and the refi boom cools, lenders may get more aggressive about competing for business from homebuyers — and loosen their underwriting standards in the process.
In a June 20 forecast, the Mortgage Bankers Association predicted that mortgage originations could plummet by 30.6 percent from this year to next, to $1.09 trillion in 2014. While the MBA expects refinancings to drop by 60.1 percent, to $388 billion, the good news for Realtors is that purchase loan originations are projected to rise by 17.2 percent, to $703 billion.
For now, however, underwriting remains tight. Ellie Mae reported that the average FICO score for denied mortgage loans of all types was 701 in June.
Would-be borrowers may have been turned down for trying to obtain loans with excessive loan-to-value (LTV) or debt-to-income (DTI) ratios.
LTVs for approved loans averaged 80 percent, versus 84 percent for denied applications. Front-end DTIs for approved loans averaged 23 percent, while borrowers who were turned down had front-end DTIs of 28 percent.