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Lending

Refinances continue downward trend, ARMs on the rise

ARMs up 5% from March 2013

ratesdown

Homeowners seeking a refinance on their home loan are becoming more rare by the day. According to Ellie Mae’s (ELLI) March 2014 Origination Insight Report, only 40% of all the loans closed were refinance loans. That marks the lowest rate in six months and the second lowest rate in nearly two years.

The low number of refinances continues a downward trend. In February, refinances made up 43% of the closed loans. In March 2013, refinances were 62% of the closed loans and in January 2013, refinances were 73% of the closed loans. 

While the amount of refinance loans is shrinking, the time to close is falling as well. The time to close was 40 days in March, down six days from March 2013. That continues a downward trend and represents the shortest closing period in nearly two years. In December 2012, for example, the average time to close a loan was 55 days.

Perhaps contributing to the increase in purchase loans was the increase in adjustable rate mortgages. ARMs made up 7.4% of the home loans closed in March. That was up by nearly 5% over March 2013’s figure of 2.5%.

The share of 15-year mortgages fell in March to 12.4% of the total loans closed. That’s also the lowest amount in nearly two years.

“We continue to see the resurgence of a purchase-centric market as numbers inch closer to historical levels,” said Jonathan Corr, president and chief operating officer of Ellie Mae.

“Credit requirements tightened ever so slightly last month,” Corr added. “The average FICO score on all closed loans increased for the first time in 2014, rising one point to 725. The average debt-to-income ratio also tightened on both the front and backend, falling to 24/37.”

But credit requirements have loosened significantly since the end of 2012, when the average FICO score for a closed loan was 750. In March, 33% of the closed loans had an average FICO score below 700, which is up from 27% from one year ago. 

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