Equifax: Subprime Mortgages on Rise

Equifax, Atlanta, said first mortgage originations for subprime borrowers (consumers with an Equifax Risk Score of 620 or below) showed steady growth from January to October 2015, with more than 312,000 new mortgages originated, totaling $50.7 billion.

The company’s National Consumer Credit Trends Report said the trend represents an increase of 28 percent in number of first mortgage originations and a 45 percent increase in the total balances from the same time a year ago.

“While there are many characteristics that define a subprime loan, such as the specific terms of the loan and the lender who issues it, credit standards are becoming more accommodating to meet market demand,” said Amy Crews Cutts, chief economist with Equifax. “At the same time, lenders are focusing more attention on evaluating consumers’ ability to repay. This has led to a much larger reliance on third-party data verifications that enable lenders to more accurately vet subprime borrowers much earlier in the origination process.”

Equifax reported the industry is also seeing an increase in subprime activity within the home equity market, with the total balance of home equity installment loans originated for subprime borrowers increasing to more than $1.4 billion, a year-over-year increase of 32.7 percent; with the total credit limits on home equity lines of credit reaching $608 billion, a year-over-year increase of 6.8 percent.

“Home equity installment loans are often more suitable for consumers with credit issues, but the regulatory costs and underwriting burdens have typically made them very expensive for lenders to originate,” Cutts said. “Conversely, HELOCs are generally more popular among consumers, but less accessible to subprime borrowers.”

Cutts said mortgage insurance is a viable alternative for home equity loans that might be used as piggy-back financing for part of the down payment on the first mortgage, “and may explain why we are not seeing similar proportionate increases in subprime home equity loans.”

Other report data for First Origination Mortgages:
–First mortgage originations January-October 2015 totaled $1.56 trillion, a year-over-year increase of 50.7 percent;
–New first mortgages originated was 6.64 million, an increase of 37.4 percent;
–As of December, the severe delinquency rate (loans that ae 90-days past due, in bankrupty or forclosure), as a share of the total balance of first mortgages, fell to 1.77 percent, the lowest level since September 2007.

Home Equity Lines of Credit
–Total balance of outstanding loans in December was $493.7 billion;
–Total credit limit of new HELOCs originated in January-October 2015 was $121.6 billion, a 19.7 percent increase from same time a year ago and a seven-year high; and
–Total number of new HELOCs originated grew to 1.17 million, an increase of 11.8 percent, the highest since 2008.

Home Equity Installment
–As of December, total balances on outstanding home equity loans is $132.7 billion;
–Total balances originated January-October 2015 was $21.9 billion, a 20.1 percent increase from same time a year ago;
–Total new home equity loans rose to 652,200, an increase of 24.7 percent, the highest level since 2008.