Housing may be back to pre-crisis levels, but mortgage lending can’t claim the same.
There are many indicators that the housing market has at last returned to “normal.” Foreclosure filings are down to 2006 levels, according to RealtyTrac data, and home prices are showing consistent appreciation. In fact, according to the National Association of REALTORS® (NAR), the median existing-home price for all housing types was $232,500 this past April, a 6.3 percent year-over-year increase and the 50th consecutive month of year-over-year gains. But can real estate agents and consumers expect these positive trends to be reflected in terms of financing for homebuyers? Unfortunately, the answer is a bit more complicated than a simple yes or no.
Credit availability has been tight since the market downturn, but many were hoping a return to “normalcy” in the housing market would result in something similar for housing finance, with more accessibility for responsible borrowers with less-than-perfect credit. Although no one is advocating for a return to the fast-and-loose lending that lend to the crash, many in the industry agree that credit requirements should be reevaluated to allow for more buyers to enter the market. According to the Ellie Mae Origination Insight Report, the average FICO credit score for all closed loans was 723 this past April, the third consecutive monthly increase. On the other hand, the closing rate on all loans hit 70.6 percent this past March, the highest rate since Ellie Mae began tracking the data in 2011.
Clearly, the somewhat confusing financial picture is muddying the waters for potential homebuyers. In fact, according to a survey from Bankrate.com, 45 percent of all non-homeowners point to finances as preventing them from buying a home, and nearly 30 percent say they can’t afford a down payment, even though many lenders offer programs that require as little as three percent down. Real estate agents should be aware the credit picture is getting better, however, particularly as more lenders increase their mortgage offerings to encompass a wide variety of loan types and products. Mortgage originations are up across the board, and Equifax reports that the number of 2015 first-mortgage originations increased 31.6 percent from 2014. Included in that jump was a 25.2 percent increase in lending to borrowers with less than perfect credit (consumers with an Equifax Risk Score of 620 or below).
So what can real estate agents do to help consumers both better understand today’s mortgage picture and purchase the home they desire? By identifying and partnering with lenders that offer a wide variety of loan products – from programs for credit-challenged borrowers to government and conventional loans –agents can help the greatest number of consumers get into their dream home. Many lenders today are creating a diverse array of loan products to help a broad range of credit profiles, some with programs for borrowers with credit scores as low as 550. Agents should look for experienced lenders that have lower credit-score requirements, low- or no-down-payment programs and manual underwriting. These lenders, with a full range of loan solutions and experience, and serving a wide variety of credit profiles, can help potential borrowers with challenging or unusual credit. By partnering with lenders with diverse loan types, real estate agents can better help clients across a broad income spectrum get into the home of their dreams.
And although the average FICO score for all closed loans was 723 this past April, at the same time nearly one-third of purchase borrowers had credit scores below 700, according to Ellie Mae. Borrowers with credit scores below 650, however, made up less than 10 percent of closed purchase loans. Lenders will have to do better to serve this often underserved sector of the market, and real estate agents can help consumers by partnering with lenders that provide credit to these borrowers. As housing continues to improve and stabilize, look for the mortgage industry to follow suit with more product offering for a broader range of borrowers, although perhaps at a slower pace than some might like. Identify lenders that are ahead of the industry and ready to embrace the future of mortgage lending with a full range of loan products for all types of borrowers, and you’ll serve your clients and your business well.
For more information, visit www.carringtonhomeloans.com.