Originations hit 3-year high – but low-credit purchase lending tumbles

by Ryan Smith07 Sep 2016
Mortgage originations hit a three-year high in the second quarter, according to new data from Black Knight Financial Services. First-lien originations saw a volume of more than $500 billion, the largest since the second quarter of 2013.

“In total, we saw $518 billion in first-lien mortgage originations in Q2, driven by a combination of continued purchase origination growth and refinance activity spurred by low interest rates,” said Ben Graboske, Black Knight Data & Analytics executive vice president. “Interestingly, however, with interest rates 15 basis points lower than in Q1, and even lower than in early 2015, refinance activity wasn’t nearly as strong as one might have expected.”

Purchase originations jumped more than 50% from the first quarter, according to Black Knight. However, refinances only posted an 8% increase quarter over quarter, and were actually down on an annual basis.
“That said, refinance lending has risen for three consecutive quarters and accounted for $221 billion in originations in Q2,” Graboske said.

July was “a particularly strong month” for purchase business, Graboske added. Purchase originations made up 57% of all first-lien lending in the second quarter, according to Black Knight.

“At $297 billion, Q2 purchase originations marked the highest level – in terms of both volume and dollar amount – seen since 2007,” Graboske said. “Although the purchase lending credit box remains tight, there is increasing participation among ‘moderate’ credit borrowers as well. Two-thirds of Q2 purchase loans went to borrowers with credit scores of 740 or higher – on par with what we saw during the same period last year – but there was a 13% year-over-year increase in lending to borrowers with credit scores between 700 and 739.”
That “moderate” credit segment has seen the highest rate of growth over the last three quarters, according to Black Knight. It currently accounts for 19% of all purchase originations.

“On the other end of the spectrum, sub-700 score borrowers now account for only 15% of originations, with less than 5% going to borrowers with scores of 660 or below,” Graboske said. “Both of these mark the lowest share of low-credit purchase lending seen dating back to at least 2000.”
 

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