Mortgage standards make refinancing easier
Mortgage lenders continued to ease underwriting standards in April, but only for borrowers who refinanced. For buyers and homeowners looking to refinance, credit remains even tighter than before the pandemic, which helped push up average FICO scores on closed loans by nearly 20 points last year.
Mortgage lenders continued to ease underwriting standards in April, but only for borrowers who refinanced. For buyers and homeowners looking to refinance, credit remains tighter than before the pandemic, which helped push up average FICO scores on closed loans by nearly 20 points last year.
This is according to the latest version of ICE Mortgage Technology Insight Origination Report, which shows that the average FICO score on closed mortgages fell for the second consecutive month in April, falling to 747. The four-point drop in FICO average scores from March to April was the biggest monthly easing in mortgage lending recorded by the ICE Report since 2013.
When the pandemic struck in March 2020, average FICO scores on closed mortgages soared, peaking at 753 in September. This represents an increase of 18 points from the average FICO score in December 2019. Previously, there had been a gradual increase in the average FICO score of mortgage borrowers, reflected by improving credit scores of the general population.
The ICE report also showed a sharp increase in the share of mortgages, which accounted for 43% of closed mortgages in April, up from 36% in March. While there is typically a seasonal increase in home loans in the spring, this change did not happen last year due to the pandemic. As of April 2020, purchase loans accounted for just 35% of closed mortgages, according to the report.
Although scarcity of inventory in many markets continues to hamper sales, pending home sales reversed two months of decline to rise 1.9% in March, according to the most recent figures from the National Association of Realtors.
It is likely that the refinancing market share was also affected by an increase in mortgage rates, from 2.99% in March to 3.22% in April.
The break in average FICO scores on both buy and refinance loans shows that the recent easing of mortgage underwriting has been limited to borrowers who refinance, with lenders competing more aggressively for their businesses.
At 757, the average FICO score for borrowers refinancing loans in April was 10 points lower than the peak of 767 recorded in September. But the average FICO score for homebuyers taking out purchase loans was 759, unchanged from March and equal to the post-pandemic peak first seen in August. Average FICO scores for purchase loans remain four points higher than before the pandemic.
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