Mortgage originations to those with subprime credit scores continued to climb steadily over the first five months of this year, according to data from Equifax.
The credit bureau's National Consumer Credit Trends Report shows that first mortgages, home equity installment loans and home equity lines of credit (HELOCs) saw significant increases in subprime originations compared with the first five months of 2014.
Specifically, the number of first mortgage originations to borrowers with low credit scores was up 30.5%, home equity installment loans were up 29.5%, and HELOCs were up 20.4%.
Despite the increase, subprime originations remain only a small fraction of total originations across the mortgage lending industry. Of the 3.26 million first mortgages originated year to date through May, about 143,800 – or 4.6% – were issued to consumers with an Equifax Risk Score below 620.
What's more, the number of subprime loans being originated today is only a small fraction compared with the number that was originated pre-crisis. For example, in 2008, more than 10% of first mortgage originations went to borrowers with credit scores below 620.
According to the report, low credit scores are still far less common in HELOCs. Of the approximately 525,000 HELOCs originated in the first five months of this year, just 7,800 were considered subprime.
‘The data make it very clear that almost nobody is getting HELOCs if they don't have a credit score above 620,’ says Amy Crews Cutts, chief economist for Equifax, in a statement. ‘But, we are seeing a rise in first mortgage and home equity installment loan origination subprime shares. It appears that American lenders still believe in second chances, and without subprime loans, there would be no second chances in the housing market. The underwriting on mortgages today is tough on everyone, and we believe that the subprime lending that is happening is being underwritten even more carefully.
‘Despite the continuing rise in overall subprime originations, banks are still greatly limiting their high-risk exposure,’ adds Cutts. ‘The credit score of the borrower at the 10th percentile of newly originated first mortgages today is 650. For HELOCs, it's 700. Looking back to the start of 2006, the credit score of the 10th percentile loan was 575 for a first mortgage and 645 for HELOCs. I think we are still a long way from the Goldilocks level of 'just right.'’