CoreLogic: Third-Quarter Originations Among Highest Quality Since 2001

CoreLogic has introduced the CoreLogic Housing Credit Index (HCI), a new quarterly report that measures variations in home mortgage credit risk attributes over time, including borrower credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV).

A rising index score indicates that new single-family loans have more credit risk than during the prior period, while a decreasing score means that new originations have less credit risk.

The inaugural report shows that mortgage loans originated in the third quarter had lower credit risk compared with loans originated in the third quarter of 2015.

In fact, the mortgages originated during the third quarter are among the highest-quality home loans originated since 2001, the firm says.

The average credit score for borrowers who secured mortgages in the third quarter was 739, an increase of five points compared with 734 in the third quarter of 2015.

As of the end of the third quarter, the share of home buyers with credit scores under 640 had dropped by more than three-quarters compared with 2001.

The average DTI for home buyers fell slightly to 35.4%, down from 35.7% a year earlier.

In the third quarter, the share of home buyers with DTIs greater than or equal to 43% was about the same compared with 2001.

The LTV for home buyers decreased about one percentage point, falling from 86.8% in the third quarter to 85.6% in the third quarter of 2015.

The share of home buyers with an LTV greater than or equal to 95% had increased by more than one-fourth compared with 2001.

“Mortgage originations over the past 15 years have exhibited a huge swing in credit tolerance, as shown in our Housing Credit Index,” says Frank Nothaft, chief economist at CoreLogic, in a statement. “The index incorporates six risk attributes, including the three C’s of underwriting – credit, collateral and capacity.

“Using 2001 originations as a base year, the HCI shows the significant loosening of credit running up to 2006,” Nothaft says. “This was followed by a dramatic tightening of credit in response to the real estate crash and a decline in high-credit-risk applicants, beginning with the Great Recession. While low down payment and high payment-to-income products are available today, borrowers generally need good credit scores to qualify. This may be a factor that has led to the drop-off in applications from those with lower credit scores during the last few years.”

Nothaft also observed that one of the consequences of this prolonged trend is that many potential home buyers appear to believe that they cannot get mortgages.

“When we compare applications to closed loans, what we find is that lenders are originating the bulk of the applications that they are receiving, but the applications that are coming in tend to be from relatively high-quality, low-risk applicants,” he says.


Please enter your comment!
Please enter your name here