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Credit Approval Process Continues to Ease

Written by Paul Esajian

According to a recent report issued by Ellie Mae Inc., trends suggest that lenders may begin to ease up on the credit approval process for receiving a mortgage. This could make it easier for potential homeowners to acquire a loan. Evidence of this particular trend may be seen in the average FICO credit score for mortgages approved in March, which are slightly down from this time last year. However, critics have expressed their concern, acknowledging that prospective homebuyers continue to struggle during the loan qualification process.

Ellie Mae’s latest findings continue to provide hope for buyers that have recently been denied a loan because of the current strict credit approval process. Statistics indicate that the average FICO score receiving approval for a mortgage in March is approximately 743, marking the lowest it has been since August 2011. The average credit score for the first quarter as a whole was 746, compared to the 748 average demonstrated in 2012. The numbers look as if they will continue their downward trend. In addition to the general acceptance of lower FICO scores, the initial payments of borrowers are trending down, currently resting at 19 percent.

By contrast, applicants who were denied had an average FICO score of 702 in March, while borrowers were willing to make down payments of approximately 15 percent.

Reluctant to accept the trends expressed by Ellie Mae, however, are those that have already tempered their expectations. Not everyone agrees that the numbers provided by Ellie Mae indicate the easement of mortgage credit. Jonathan Miller, president and CEO of real estate appraisal and consulting firm Miller Samuel Inc., was quick to point out that the findings were derived from about 20 percent of all loans. The small sample size neglects to represent loan approvals as a whole.

Miller is not the only one who reluctantly denies the truth behind Ellie Mae’s recent statistics. “I warn my clients to be prepared to give their arm, leg, and 1st born,” wrote Lakshmi G. Yokoyama, a mortgage consultant at Sierra Pacific Mortgage Corp.

Robert J. Spinosa, a loan officer at RPM Mortgage, confirmed that Ellie Mae’s findings resembled his own. “But I think that at least a small percentage of what can be perceived as ‘credit easing’ is in fact our better ability to advise, structure and execute with the tools we have,” he wrote. “But yes, I am optimistic and feel that things are moving in the right direction. It’s been a long time coming.”

Despite conflicting opinions, trending statistics reported by Ellie Mae are a promising sign that the credit approval process continues to ease. Continued trends will allow closing rates to increase, further helping the housing market and reducing the mortgage crisis. As of March, closing rates are higher than any month in 2012.