We are finally starting to see some of the first verifiable signs of looser lending standards in the mortgage market since the housing collapse. That’s good news for those who have been scrimping and saving to get into a home of their own.
As mortgage lenders saw their refinance traffic slow dramatically after this summer’s spike in interest rates, many tried to drum up extra business on the purchase side, by lower credit score requirements and down payment thresholds. Mortgage data tracker Ellie Mae reported that the average FICO credit score among borrowers with closed home loans in September was 732, down from 750 a year earlier.
“When you drill down farther, the change is even more apparent,” commented Ellie Mae president Jonathan Corr in a press release. “For example, 31% of the closed loans in September 2013 had FICO scores under 700 compared to 17.46% of closed loans in September 2012.”
“We continue to see things open up ever so slightly month by month,” Corr added.
Lenders are also allowing some borrowers to bring less to the table. In the past few months both Bank of America and Wells Fargo reduced their minimum down payment requirements for non-comforming loans (those over $417,000) to 15 percent from 20 percent. JPMorgan Chase reduced down payment requirements in the states hit hardest by the housing bust – Arizona, Florida, Nevada and Michigan – to just five percent down from 10 percent. Those standards are now on par with Chase’s requirements for the rest of the country.
All the rule changing has definitely affected borrowers. Average down payments on closed loans fell to 19 percent of the purchase price in September, down from 22 percent last year at the same time.
It’s hard to tell if these looser standards are the indicator of a trend or a momentary relaxing in order to compensate for lack of refinancing, but borrowers may enjoy it at least for now.