Mortgage Loan
Refinance

Growth in purchase loan originations, closings signal growing strength in housing

by Broderick Perkins

(4/23/2012) Erate Exclusive - In another sign more buyers are on the move, the share of purchase loans is growing.

In March, the percentage of purchase loans rose to 39 percent, up from 33 percent in February.

There was a corresponding increase in first-time-buyer-favorite Federal Housing Administration (FHA) loans, which rose from 25 percent in February to 28 percent in March, according to Ellie Mae's March Origination Insight Report.

What's more, a higher percentage of purchase mortgages closed (56.4 percent) compared to refinances (42.1 percent), based on mortgages that ran through Ellie Mae's mortgage management software, approximately two million loan applications, or 20 percent of all U.S. mortgage originations.

Unfortunately, credit remains tight. Only 47 percent of all applications closed.

"In March, as we moved into the spring selling season, underwriting standards for both purchase and refinance loans continued to be highly conservative," said Jonathan Corr, chief operating officer of Ellie Mae.

Ellie Mae is a Pleasanton, CA company offering digital operating system for mortgage originators, including customer relationship management, loan origination, and business management software.

"The average loan denial in March still had a FICO credit score just shy of 700, and more than 15 percent in equity or a down payment. On average, there was an 8-point spread between back-end DTI (debt-to-income) ratios for approved-versus-denied loans last month. The average denials for conventional refinances and purchases continued to have significantly higher FICOs, lower LTVs (loan-to-value) and more restrictive DTIs than the overall averages," Corr said.

Ellie Mae reported in March, the average loan closed had a FICO score of 749, a LTV ratio of 77 percent and a DTI ratio of 23/35. Denied loans, on average had a FICO of 699, an 85 percent LTV, and a DTI of 27/43.

Application-to-closing times are a bit faster.

"The timeline from application to closing for the average loan was 42 days in March, two days shorter than February, which suggests that the industry was working through the surge in refinance applications that came in at the end of last year," Corr added.

With rates at historically low levels, the percentage of borrowers opting for adjustable rate mortgages (ARMs) in March was at the lowest point in the past six months and half the level of last summer.

The majority of loans were 30-year fixed-rate loans (FRM) but 20.2 percent were 15 year notes and 4.2 percent were adjustable rate mortgages (ARMs). The incidence of ARMs has decreased since September when they had a 6.0 percent market share. The average note rate for a 30-year FRM has declined steadily from 4.412 in September to 4.080 in March, Ellie Mae reported. 

 

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