Are lenders cherry-picking higher FICO scores?

NEW YORK – Sept. 14, 2015 – Some lenders might be playing a numbers game with consumers, claiming they’re open to lending home loans to people with lower credit scores but actually approving applicants with higher scores, on average, than they did a year ago or even early 2015.

The Mortgage Bankers Association recently reported that conditions for applicants have improved for “eight of the last nine months,” including for loans where borrowers have “lower credit scores.”

However, Ellie Mae Inc. data finds that average FICO credit scores on non-government and government-backed mortgages for homes have been increasing – not decreasing – since the first of this year. FICO scores range from 300, the highest risk of default, to 850, the lowest risk.

Back in January, Ellie Mae’s research found that the average FICO credit score for applicants who closed on non-government home mortgages was 752. But it climbed steadily to 757 in July, the most recent month surveyed – a higher average than during any month in 2014. Federal Housing Administration (FHA) loans show a similar pattern, with VA loan scores also up in July on average compared with January.

The question then becomes: “Are lenders cherry-picking when it comes time to approve applications, or are other factors at work?

Mortgage Bankers Association Chief Economist Mike Fratantoni says that part of the conflict between the credit availability report and Ellie Mae’s statistics can be traced to the fact that they are measuring different things. The MBA study examines what terms lenders are offering – terms that have definitely loosened up over the last year. By comparison, the Ellie Mae report focuses on the end result of actual applications.

“Some borrowers may have acceptable credit scores but negative issues elsewhere in their applications,” real estate writer Ken Harney concludes.

Source: Hartford Courant (Connecticut) (09/11/15) Harney, Ken

© Copyright 2015 INFORMATION, INC. Bethesda, MD (301) 215-4688

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