More Evidence Mortgage Credit Standards Are Easing Slightly

By Amilda Dymi April 22, 2014, 6:33 p.m. EDT 1 Min Read

Consumer banking

Loan Shortage Pushes Mortgage Firms to Accept Lower Credit Scores

Higher rates, mounting costs and the opportunity to lend to underserved borrowers have pushed some residential lenders to lower their minimum FICO scores, despite broader reluctance to take more risk in a heavily regulated market.

By Bonnie Sinnock

March 24
Consumer banking

FHA Quality Assurance Plan Assures Fewer Loans Get Made: Lenders

The increased scrutiny, mortgage bankers complain, would end recent attempts to provide home loans to borrowers with weaker credit, something the FHA has been trying to spur for years.

By Kate Berry

March 5

A new survey provides further evidence that continuing declines in mortgage origination volume have motivated lenders to ease credit standards.

Of 29 independent mortgage lenders "that had not previously extended credit to borrowers" with FICO scores under 600, one-third relaxed that requirement during the fourth quarter, according to the report from Richey May & Co.

The finding jibes with what industry insiders and other data have said recently.

It is difficult to keep production levels up, so "banks are trying a lot of different things" Ken Richey, managing partner of Richey May, a provider of technology, audit, tax and business consulting services for small to medium sized banks in Englewood, Colo., said in a press release. Lending to borrowers with lower FICO scores is just one of them.

Each of the surveyed lenders produces at least $10 billion of mortgages a year. Overall loan production volume for the group decreased by an average of nearly 11% in the fourth quarter as participating lenders reported production declines of anywhere from 6% to 55%. In addition, the refinance and purchase volumes for the surveyed lenders fell by 9% and nearly 12%, respectively.

Quarterly data filed by these mortgage bankers to the government sponsored enterprises through the Mortgage Bankers' Financial Reporting Form shows lenders were closing more loans for borrowers with FICO scores ranging from 651 to 700, and fewer loans for borrowers whose FICO scores were higher than 750.

Amilda Dymi