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Borrower FICO Scores Hit 8-year Low

The average FICO score of a mortgage borrower is at its lowest since 2008, according to the latest Insights report from STRATMOR. As of 2016, the average U.S. borrower has a FICO score of 729.

According to the report, it’s the looser credit standards of non-bank lenders that’s bringing down the average. Borrowers of bank-originated loans had an average FICO score of 743 last year; borrowers of independent, non-bank loans had an average score of 719.

“STRATMOR data shows that after the financial crisis in 2008, borrowers’ average credit scores rose significantly,” STRATMOR Senior Advisor Rob Chrisman said. “It also shows a material decline in those scores, beginning in 2013, driven primarily by non-bank lenders."

The report also argued that as many high-credit borrowers have already purchased homes or refinanced their loans, originators are shifting their sights to lower-credit groups, and that means loosening credit standards and opting for more risk-based pricing models.

“As the industry experiences slower growth due to demographics, affordability, smaller family size, smaller homes, later marriages, higher health care costs, slower immigration, etc., looser underwriting standards (with higher prices) will be a source of growth and a way for lenders to ‘feed the beast,’” the report stated. “In other words, lenders are adjusting guidelines to suit borrowers with an eye towards filling their lending capacity.”

According to the report, many lenders—including Royal Pacific Funding, Opes Advisors, Sierra Pacific, Sun West, Flagstar Bank, Castle Mortgage, and Ditech Financial—are even offering specific high loan-to-value mortgages or low-credit programs to target borrowers who previously were unable to purchase a home.

"We’re already seeing lenders adjusting guidelines to suit borrowers with higher loan-to-value and lower credit score mortgages becoming more prevalent,” Chrisman said. “Likewise, lenders—and investors—are advertising programs aimed at opening up credit to borrowers previously unable to access the mortgage market."

But, according to the report, though credit standards may have lightened up, housing inventory remains strapped, and that could offset any potential origination increase that looser credit could provide.

“Despite credit score movements, the housing market still faces exceptionally tight levels of inventories, lack of raw land near city centers, insufficient number of finished lots, and the lack of an available pool of construction workers. And the fabled millennials—young adult renters—tend to live in more expensive markets along the coasts where affordability remains a challenge to own a home.”

View the full Insights report at STRATMORGroup.com.

About Author: Aly J. Yale

Aly J. Yale is a longtime writer and editor from Texas. Her resume boasts positions with The Dallas Morning News, NBC, PBS, and various other regional and national publications. She has also worked with both the Five Star Institute and REO Red Book, as well as various other mortgage industry clients on content strategy, blogging, marketing, and more.
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