Refinances Up, Standards Down in January Origination Report

Refinances continued to gain ground against purchase loans last month, while lenders pulled back a little more on credit requirements, Ellie Mae revealed in its January Origination Insight Report.

Examining a sample of applications passing through its network, Ellie Mae reports refinance mortgages made up 47 percent of originations in January, up slightly from December. Refinance share bottomed out at 39 percent in October 2013 and has slowly risen since.

The increase in refinances compared to purchase loans matches Freddie Mac’s latest outlook, which observed a “second wind” for remortgaging as interest rates resist lifting factors.

The number of refinances related to the Home Affordable Refinance Program (HARP) also rose, climbing for the third straight month, according to the report.

“Conventional refinances at 95 percent-plus LTV [loan-to-value ratio] rose to 14.3 percent in January 2014, the highest they’ve been since we began tracking this data in October 2011,” said Jonathan Corr, president and COO of Ellie Mae.

Notably, Ellie Mae also recorded an adjustable-rate mortgage (ARM) share of 7.2 percent, up more than half a percentage point and the highest ARM share in the company’s report since August 2011—representing a switch from borrowers seeking to stretch their buying power, Corr explained.

Meanwhile, credit requirements continued to loosen. The average FICO score for all closed loans examined in the report was 724 in January, down from 727 in December, while the average LTV was slightly higher at 82 percent (compared to December’s 81 percent).

For denied loans, the average FICO was lower—692—while the average LTV was slightly higher at 83 percent.

About 32 percent of closed loans last month had a FICO score below 700, up from 23 percent at the start of 2013.