Borrowers Keep Moving To ARMs; Credit Requirements Keep Loosening

During the first month of the new year, credit requirements continued to loosen, and the percentage of adjustable-rate mortgage (ARM) loans continued to increase, according to Ellie Mae's Origination Insight Report for January.

To get a meaningful view of lender ‘pull-through,’ Ellie Mae says it reviewed a sampling of loan applications initiated 90 days prior (i.e., the October 2013 applications) to calculate an overall closing rate of 54.9% in January of this year, up only slightly from 54.3% in December.

All of the following highlights from the report are attributable to Jonathan Corr, president and chief operating officer of Ellie Mae:

The purchase-to-refinance mix was "relatively steady" – with a 1% change from the month before.

Continuing their recent trend, credit requirements loosened, while the average FICO score for closed loans fell to 724, which is down three points from December. Also, 32% of closed loans had FICO scores under 700; comparatively, it was at 23% in January of last year.

The percentage of adjustable-rated mortgage (ARM) loans also went up to 7.2% – the fourth consecutive month Ellie Mae has seen this shift and also the highest level since August 2011, when it was at 8.3%. Borrowers usually "move to ARMs as a way of stretching their buying power."

HARP-related refinancing activity also went up for the third month in a row. Conventional refinances at 95%-plus loan-to-value increased to 14.3%, which is the highest level Ellie Mae has reported since October 2011, when it started tracking this data.

The average time to close a loan was 45 days, which was up from 43 days from the month before – likely a result of the winter holiday season and the CFPB's new regulations.

Ellie Mae's entire report can be found here.


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