MReport July 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 43 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST The Daunting Down Payment A recent survey says down payments, inventory, and student debt are holding first-time buyers back. A t the beginning of May, Genworth Mortgage Insurance surveyed mortgage professionals to assess the reason behind the nation's declining number of first-time homebuyers. For the largest portion of re - spondents, down payments were believed to be the biggest hurdle. According to the survey, there were five main factors believed to be responsible for the drop in first-time homebuyers. Out of the 150 people interviewed, 39 percent believe the largest obstacle for first-time homebuyers to overcome was the misunderstanding that a 20 percent down payment was necessary to secure a mortgage. Twenty-eight percent of the professionals interviewed said they believe the dwindling quantity of houses for sale is responsible for the decline, while other respon - dents cited excessive student debt (27 percent) and rising interest rates (6 percent) as major factors in the falling number of first-time buyers. Additionally, 41 percent of industry professionals believe that prospective consumers think obtaining a home is more difficult if they are unable to provide the 20 percent down payment. First-time buyers are the prima - ry driving force for the mortgage market, and quality education for potential consumers is the first step in rectifying this disparity, according to Rohit Gupta, CEO of Genworth Mortgage Insurance. "[M]any are staying on the side - lines due to the misconception that a 20 percent down payment is re- quired to secure a mortgage," Gupta said. "There are various low down payment options available today that allow prospective homebuyers to reach their dreams." It is imperative, he said, to be proactive in informing those who are not in the know. In an indus - try that is ever-changing, compa- nies will have to be vigilant in educating prospective borrowers on the various means in which they can obtain a mortgage, and a constant dialogue between industry professionals is vital to bridging that gap. Borrower FICO Scores Hit 8-year Low Many nonbank lenders are loosening their credit standards to appeal to new buyer groups. T he 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. bor- rower has a FICO score of 729. According to the report, it's the looser credit standards of nonbank lenders that's bringing down the average. Borrowers of bank-originated loans had an average FICO score of 743 last year; borrowers of independent, nonbank loans had an average score of 719. "STRATMOR data shows that after the financial crisis in 2008, bor - rowers' 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 nonbank 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, high - er 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 to- wards 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 bor- rowers who previously were unable to purchase a home. "We're already seeing lenders adjusting guidelines to suit bor- rowers 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 off- set 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 avail- able 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." believe the largest obstacle for first-time homebuyers to overcome was the misunderstanding that a 20 percent down payment was necessary to secure a mortgage.

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