Lenders Hang Tough as Sales Season Opens

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Lenders haven't budged an inch on tough origination standards as the 2012 spring sales season opened last month and conventional purchase and FHA loans gained greater market share.

Median FICO scores for denied loans remained close to 700 and for the average loan, lenders required more than 15 percent in equity or a down payment. On average, there was an 8-point spread between back-end DTI ratios for approved-versus-denied loans last month, according to the Ellie Mae Origination Insight Report.

"In March, as we moved into the Spring selling season, underwriting standards for both purchase and refinance loans continued to be highly conservative," said Jonathan Corr, chief operating officer of Ellie Mae. "On average, there was an 8-point spread between back-end DTI ratios for approved-versus-denied loans last month. The average denials for conventional refinances and purchases continued to have significantly higher FICOs, lower LTVs and more restrictive DTIs than the overall averages."

Ellie Mae found that nearly 47 percent of all applications closed, with a higher percentage of purchase mortgages closing (56.4 percent). However, February purchase loan closings were 60.1 percent, suggesting the quality of applications declined slightly with the beginning of the buying season.

"The numbers showed a significant pick up in the percentage of purchase loans to 39% in March versus 33% in February, and a corresponding increase in FHA share: 28 percent of closed loans versus 25% in February," said Corr. "The increase in FHA share was not surprising given FHA originations tend to skew more heavily towards purchase.

The timeline from application to closing for the average loan was 42 days in March, two days shorter than February, which suggests that the industry was working through the surge in refinance applications that came in at the end of last year. "With rates at historically low levels, the percentage of borrowers opting for adjustable rate mortgages (ARMs) in March was at the lowest point in the past six months and roughly half of where it was at the end of last summer," Corr said.

In 2011, the total volume of mortgages that ran through Ellie Mae's Encompass360 mortgage management software was approximately two million loan applications, or 20 percent of all U.S. mortgage originations. The Origination Insight Report mines its application data from a robust sampling of approximately 33 percent of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae's market share, the company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.