High LTV Refinances Spike, Underwriting Standards Relax

By Stevie Duffin Updated on 3/20/2013

By Daniel Duffield

In February, mortgages with high loan-to-value ratios (LTV) of 95% of higher saw a sharp rise in refinancing, according to the latest origination report released by Ellie Mae. This trend demonstrates the continued popularity of the Home Affordable Refinance Program (HARP) with underwater borrowers, although HARP 3 has yet to be officially announced or revealed.

For conventional loans, refinances on homes with LTV rations exceeding 95% increased for the sixth consecutive month to 12.1%, reaching the highest peak since Ellie Mae began to record these statistics in October.

Ellie Mae has accumulated data for the report after taking a sample of loan applications processed through the Encompass 360 mortgage management software. Approximately two million loans utilize this system, accounting for roughly 20% of all mortgage loans.

Simultaneously, the standard credit score, loan-to-value ratio, and debt-to-income (DTI) for mortgage loans has revealed a higher degree of leniency during application underwriting.

For example, during February, the average FICO score measured 745, declining 4 points from the 749 figure in January and reaching the lowest point in the survey since May 2012.

According to Jonathan Corr, chief operating officer for Ellie Mae, the average loan-to-value ratio for loan applications also declined, reaching 80% and the lowest level since July 2012. Likewise, debt-to-income ratio declined to 35% at the lowest since June 2012. This general easing of underwriting qualification suggests that credit standards are relaxing, Corr indicated.

As the spring home buying season draws near, home purchases have demonstrated signs of growing strength, with the percentage of purchase loans obtained reaching 32% in February after rising 5% from 27% in January.

Furthermore, the time frame for average loan closing saw a noticeable improvement, falling to just 50 days in February from 54 days in January, the report stated.