Lenders Get Even More Strict With Borrowers
Mortgage rates continue to hit new lows, but the ultra-low rates are out of reach for many would-be borrowers who can’t meet strict underwriting standards. And new national data suggests that underwriting standards for getting a loan are getting even stricter, too.
FICO credit scores on all new loans closed in August averaged 750. That is nine points higher than one year ago, according to a survey of about 2 million mortgages by Ellie Mae Inc., a mortgage technology firm used by many lenders. For home owners who refinanced in August, the average FICO score was 769—even higher—at Fannie Mae and Freddie Mac. That is up six points from last August. According to Fannie Mae and Freddie Mac, for home purchasers the average credit score was 763.
The developer of FICO scores, Fair Isaac Co., finds that 78.5 percent of all consumers have scores that fall between 300 and 749. “Barely one in five, in other words, scores high enough to meet today’s FICO score averages at Fannie and Freddie,” The Washington Post reports.
Besides high credit scores, borrowers are coming with higher down payments to satisfy lenders, too. Home buyers who used a Fannie or Freddie loan had, on average, a 21 percent down payment in August. Home owners who refinanced had average equity in their homes of 30 percent.
Would-be borrowers who were denied Fannie and Freddie loans also still had seemingly solid credit profiles, The Washington Post reports, with the average buyer denied boasting a 734 FICO score and a 19 percent down payment.
Doug Duncan, Fannie Mae’s chief economist, believes that standards will eventually ease up as banks get rid of some of the extra credit-risk fees that they’ve had to add to mortgage quotes since the housing crisis. He also thinks lenders’ fears will ease too about costly “buyback demands from Fannie and Freddie,” The Washington Post reports.
Source: “Mortgage Lenders Set Higher Standards for the Average Borrower,” The Washington Post (Sept. 28, 2012)