Hello, LOs!
Black Knight's originations report released Monday showed credit scores dropped in May, led by a significant drop in scores for those getting cash-out refinances.
Average credit scores for cash-out refis came in below 700, dropping seven points in the last three months and 33 points year over year. Meanwhile, average credit scores for purchase locks fell marginally by two points to 732 and rate/ term refinance dropped by a point from the previous month, to 731 in May.
Does this mean lenders are issuing riskier loans because they need volume to sustain operations and make profit?
Not quite, according to Black Knight.
"It's historically typical behavior for high credit score borrowers to exit the refi market when rates rise; we've seen it time and again," Andy Walden, vice president of enterprise research, told HousingWire. "When the higher scored borrowers leave the total pool, it results in lower overall credit scores among refinance transactions."
It also may indicate borrowers are shifting toward home equity loans, which have tighter lending standards, Walden added. He said those high credit borrowers who qualify for HELOCs may be moving to those products, while those with lower credit scores may not qualify and may be using cash-out refinances to access equity.
A brokerage owner in Brooklyn, Kevin Leibowitz, made comments in line with Black Knight's analysis: He hasn't seen enough lenders expand the credit box to get more borrowers.
"Lenders are finally getting to the difficult loans and difficult loan-profile (non-standard income) borrowers that weren't getting ample love during the refi boom," Leibowitz, president of Grayton Mortgage, said.
The borrower's credit score does not reflect everything about the health of the mortgage market, he said, adding: "What would be concerning is when the LTV is going up."
LOs, are your lenders expanding the credit box? What other indicators are you keeping track of to gauge the health of the mortgage market?
Please send your thoughts to connie@hwmedia.com.
Connie Kim
Mortgage reporter, HousingWire
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