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Mortgage Lending Standards Ease For Refinances

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Mortgage lenders continued to ease underwriting standards in April, but only for borrowers who were refinancing. For both homebuyers and homeowners seeking to refinance, credit still remains tighter than before the pandemic, which helped pushed average FICO scores on closed loans up by nearly 20 points last year.

Mortgage lenders continued to ease underwriting standards in April, but only for borrowers who were refinancing. For both homebuyers and homeowners seeking to refinance, credit remains tighter than before the pandemic, which helped pushed average FICO scores on closed loans up by nearly 20 points last year.

That’s according to ICE Mortgage Technology’s latest Origination Insight Report, which shows the average FICO score on closed mortgage loans dropped for the second month in a row during April, falling to 747. The four-point drop in average FICO scores from March to April was the biggest monthly easing in mortgage credit recorded by the ICE report since 2013.

Source: Data from ICE Mortgage Technology Origination Insight Reports compiled by Inman.

When the pandemic hit in March 2020, average FICO scores on closed mortgage loans shot up, peaking at 753 in September. That’s an 18-point increase from the average FICO score in December 2019. Before that, there had been a gradual increase in the average FICO score of mortgage borrowers, mirrored by improving credit scores in the population at large.

The ICE report also showed a big jump in the share of mortgage purchase loans, which accounted for 43 percent of closed mortgages in April, up from 36 percent in March. While there’s usually a seasonal increase in purchase loan originations in the spring, that shift didn’t play out last year because of the pandemic. In April 2020, purchase loans accounted for just 35 percent of closed mortgages, the report said.

Although scarce inventories in many markets continue to hamper sales, pending-home sales reversed two months of declines to grow 1.9 percent in March, according to the most recent numbers from the National Association of Realtors.

It’s likely that refinancing market share was also dented by an increase in mortgage rates, from 2.99 percent in March to 3.22 percent in April.

Breaking out average FICO scores on purchase loans and refinancing shows recent easing in mortgage underwriting has been confined to borrowers who are refinancing, as lenders compete more aggressively for their business.

At 757, the average FICO score for borrowers refinancing loans in April was 10 points lower than the 767 peak seen in September. But the average FICO score for homebuyers taking out purchase loans was 759, unchanged from March and equal to the post-pandemic peak first seen in August. Average FICO scores for purchase loans remain four points higher than before the pandemic.

Source: Data from ICE Mortgage Technology Origination Insight Reports compiled by Inman.

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