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Home Purchase Lending Best Since 2007, But Only If You Have Good Credit


It looks like 2015 is shaping up to be a pretty stellar year for home purchase lending, according to the latest Mortgage Monitor Report from Black Knight Financial Services.

The company revealed today that home purchase mortgage originations this past June were the highest they’ve been since 2007, a year when the real estate market was pretty much on fire.

Of course, it all came crashing to a halt the following year, but hopefully this time it’s different.

It should be, given the fact that most of these loans are going to borrowers with good credit. And you’re no longer able to qualify for a mortgage simply because you have a credit score.

Yes, underwriters actually consider your employment, income, and assets these days, even if down payment requirements are creeping back toward zero again.

Average Credit Score for Purchase Mortgages Hits All-Time High

The report noted that the increase in home purchase lending is being driven almost entirely by borrowers with high credit scores.

In fact, purchase mortgages for borrowers with sub-700 credit scores are flat to slightly down from levels seen a year earlier.

And only twenty percent of purchase loans doled out over the past three months have gone to borrowers with credit scores below 700.

This explains why the weighted average credit score for purchase loans hit an all-time high of 755.

That’s good news for the real estate market as a whole because it probably means these homeowners will make on-time mortgage payments and avoid foreclosure.

But it also means a lot of borrowers with marginal credit might be getting squeezed out by credit winners when it comes time to make an offer on a home.

And eventually when home prices are out of reach, these lower-credit score borrowers might finally get a chance to buy at a premium. That could create another crisis, though such an event is probably still years away.

In the meantime, let’s focus on the fact that second quarter purchase mortgage volume was up 15% from the same period a year earlier.

Additionally, early third quarter numbers show an 11% increase from Q3 2014.

So apparently lots of people are buying homes and taking out mortgages to finance said homes, which is good news for mortgage lenders.

More Refis Going to Borrowers with Lower Credit Scores

It’s good because refinance activity is beginning to wane as borrowers get what Black Knight refers to as “prepay burnout.”

Yes, mortgage rates have been low for a long time now and many homeowners have already taken advantage. And those who haven’t may not be able to due to things like negative equity or other various reasons.

So lenders must turn to the purchase market to ride out the lull unless a new spark comes along (lower FHA premiums anyone?).

Per Black Knight, refinance activity has been “steadily declining since March” of this year and I doubt it’s going to improve as we head into the holiday season.

Interestingly, average credit scores for refinance originations have been on the decline, which could be a sign that the once bountiful well is beginning to dry up.

In other words, all the borrowers with good FICO scores already refinanced, and now lenders are perhaps getting a bit more desperate.

There’s also a chance that credit is beginning to loosen, or at least, lenders are starting to consider candidates with lower credit scores out of necessity, which may be a silver lining for some.

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