Have Lower Lending Standards Pushed Credit Scores Down?

first_img The Best Markets For Residential Property Investors 2 days ago Data Provider Black Knight to Acquire Top of Mind 2 days ago It’s been one of the biggest stories to follow in mortgage lending: After years of too-loose and then too-tight credit access, average FICO scores are now slowly floating down, and the market looks a little more open for low-score borrowers.But do these steady declines really indicate a loosening in standards among lenders? “Afraid not,” say researchers at the Urban Institute’s (UI) Housing Finance Policy Center.In a blog post published late last week, UI’s Jun Zhu, Laurie Goodman, and Bing Bai assert, “A market composition change—not lower lending standards—explains the decrease in average credit scores for conventional and FHA [Federal Housing Administration] mortgages.“Despite rising home prices and gradual housing recovery, the mortgage lending rules have remained tight, inhibiting housing demand and economic growth,” they continue.In their post, the researchers examine Ellie Mae’s latest Origination Insight Report, which shows average credit scores for conventional purchase loans in March stood at 755, while FHA loans were at an average 684—both down from last year.In their own findings, the UI team found credit scores for conventional mortgages averaged 752, down from 758 a year ago, while scores on FHA purchase loans were down to 686 from 697. The findings echo Ellie Mae’s latest Origination Insight Report, which showed average scores for conventional purchase loans at 755 and FHA loans at 684 in March.However, pooling the loans together reveals credit scores were flat: “The average credit score of all purchase loans stayed around 730 during the one-year period—no actual credit easing.”Rather, the researchers say the shifting market is behind the decreases in approved credit scores. With FHA raising its insurance premiums, private mortgage insurance has started to look more attractive to those borrowers whose FICO scores rate high by FHA standards but still fall on the low end of GSE standards.As a result, the group says, FHA is losing business at the higher end of its credit score range, bringing its average score down. (According to the team, the share of borrowers in FHA’s 680–759 and 760+ brackets dropped as of March to 40 percent and 8 percent, respectively—down several percentage points in each bracket.)Meanwhile, the GSEs are taking those same borrowers, in turn seeing their own average scores fall.It’s because of that change—and not declining credit standards—that average scores are on the decline, the researchers conclude: “Most of the buzz about credit score declines in GSE and FHA loans are due to higher FICO score borrowers now choosing GSE lending over FHA—shifting the market share and reducing the credit scores of both.” Credit Scores Ellie Mae FICO The Urban Institute 2014-05-05 Tory Barringer Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Previous: Personal Income Strong in March Next: Clear Capital: Best Home Deals in ‘Mid-Tier’  Print This Post May 5, 2014 664 Views Demand Propels Home Prices Upward 2 days ago Share Save Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Subscribe The Best Markets For Residential Property Investors 2 days agocenter_img Servicers Navigate the Post-Pandemic World 2 days ago Home / Daily Dose / Have Lower Lending Standards Pushed Credit Scores Down? Demand Propels Home Prices Upward 2 days ago The Week Ahead: Nearing the Forbearance Exit 2 days ago in Daily Dose, Featured, Headlines, Market Studies, News Have Lower Lending Standards Pushed Credit Scores Down? Servicers Navigate the Post-Pandemic World 2 days ago Tagged with: Credit Scores Ellie Mae FICO The Urban Institute Data Provider Black Knight to Acquire Top of Mind 2 days ago Sign up for DS News Daily Related Articleslast_img

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