A new survey provides further evidence that continuing declines in mortgage origination volume have motivated lenders to ease credit standards.
Of 29 independent mortgage lenders "that had not previously extended credit to borrowers" with FICO scores under 600, one-third relaxed that requirement during the fourth quarter, according to the report from Richey May & Co.
The finding jibes with what industry insiders and other data have said recently.
It is difficult to keep production levels up, so "banks are trying a lot of different things" Ken Richey, managing partner of Richey May, a provider of technology, audit, tax and business consulting services for small to medium sized banks in Englewood, Colo., said in a press release. Lending to borrowers with lower FICO scores is just one of them.
Each of the surveyed lenders produces at least $10 billion of mortgages a year. Overall loan production volume for the group decreased by an average of nearly 11% in the fourth quarter as participating lenders reported production declines of anywhere from 6% to 55%. In addition, the refinance and purchase volumes for the surveyed lenders fell by 9% and nearly 12%, respectively.
Quarterly data filed by these mortgage bankers to the government sponsored enterprises through the Mortgage Bankers' Financial Reporting Form shows lenders were closing more loans for borrowers with FICO scores ranging from 651 to 700, and fewer loans for borrowers whose FICO scores were higher than 750.