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Nov. 2015-Opportunity Knocks

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o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION the latest 40 | Th e M Rep o RT subprime Mortgage originations rise during First Five Months of 2015 Despite the uptick, subprime originations remain lower than in the years leading up to the Great Recession. l enders across the United States appear to be offering borrowers a second chance at obtaining a mortgage by originating more subprime mortgages for borrowers with credit scores under 620. Equifax's recent National Consumer Credit Trends Report found that subprime mortgage originations soared during the first five months of 2015. First mortgages, home equity installment (HE) loans, and home equity lines of credit (HELOCs) all experienced an uptick in subprime originations compared to the same period last year. The amount of first mortgage origina- tions to borrowers with subprime credit scores increased 30.5 per- cent, HE loans rose 29.5 percent, and HELOCs rose 20.4 percent. Equifax explained that although subprime originations are rising, overall, these originations are only a small portion of total originations across the mortgage-lending sector. Additionally, the subprime origina- tion numbers remain below figures seen before the Great Recession. HELOC lending is slower than some of the other options, the report noted. Only 7,800 of the 525,000 HELOCs originated in the first five months of 2015 were considered subprime. "The data make it very clear that almost nobody is getting HELOCs if they don't have a credit score above 620," said Amy Crews Cutts, chief economist at Equifax. "But we are seeing a rise in first mortgage and home equity installment loan origination subprime shares." She added, "It appears that American lenders still believe in second chances, and without subprime loans, there would be no second chances in the hous- ing market. The underwriting on mortgages today is tough on everyone and we believe that the subprime lending that is happen- ing is being underwritten even more carefully." The data also found that lend- ers are working to reduce risk involved with subprime mortgage originations. "Despite the continuing rise in overall subprime originations, banks are still greatly limiting their high-risk exposure," Cutts said. "The credit score of the borrower at the 10th percentile of newly originated first mortgages today is 650. For HELOCs, it's 700. Looking back to the start of 2006, the credit score of the 10th percentile loan was 575 for a first mortgage and 645 for HELOCs. I think we are still a long way from the Goldilocks level of 'just right.'" Key data on subprime origina- tions from the Equifax National Consumer Credit Trends Report: • Of the 3.26 million first mort- gages originated year-to-date through May, 143,800—or 4.6 percent—were issued to con- sumers with an Equifax Risk Score below 620. • Of the more than 280,700 HE loans originated year-to-date, 30,900—or 1.5 percent—went to those with low credit scores. • As HE installment loan origina- tions rose 22.4 percent from a year ago and surged to their highest level since 2008, sub- prime originations also jumped sharply, by 29.5 percent. The average origination loan amount of a new subprime HE loan also climbed, hitting $22,455 in May 2015, up 11.6 percent from May 2014.

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