1. Skip to Menu
  2. Skip to Content
  3. Skip to Footer

Lenders Loosen Risk Standards as Rates Rise

According to a new report, mortgage lenders are taking increased credit risks similar to those of the early 2000s. Released on Tuesday, the report shows that the level of credit risk taken by lenders in Q1 of 2017 was about the same as the average risk taken between 2001 and 2003. The shift is likely a result of declining refinances, rising mortgage rates, and an increased share of investor, condo, and co-op purchases.

Mortgage lenders are taking increased credit risks similar to those of the early 2000s, according to the Q1 Housing Credit Index Report released by CoreLogic on Tuesday. The level of credit risk taken by lenders in Q1 of 2017 was about the same as the average risk taken between 2001 and 2003.

According to the report, the shift toward riskier lending standards is a result of declining refinances.

“The slight loosening in the credit index during the past year was partly due to a shift in the mix of purchase versus refinance originations because purchase loans exhibit higher risk attributes than refinanced loans,” CoreLogic reported.

According to Frank Nothaft, CoreLogic’s Chief Economist, increasing mortgage rates also played a role in the looser lending practices over the last quarter.

“Mortgage rates during the first quarter of 2017 were up about 0.5 percentage points from a year earlier,” Nothaft said. “Since 2009, for every one-half percentage point increase in mortgage rates, the average credit score on refinance borrowers has dipped by 9 points, and this pattern will likely continue if mortgage rates move higher. That is because when rates rise, applications drop off and loan officers spend more time with the applicants that have less-than- perfect credit scores, require more documentation or have unique property issues.”  Read More

feedback