A new monthly report on the state of the mortgage origination market has been initiated by Ellie Mae, a company which provides software and a mortgage origination network to mortgages originators.  The first report reviews and compares data amassed from loan applications in its database, for the months of August and November 2011 and February 2012.  Ellie Mae states that there were two million loan applications processed through its systems in 2011 and the survey is based on a 33 percent sample of those applications.

The report outlines the characteristics of the loans for each of the three months.  Because of the volume of data contained in the report, we will summarize figures for February and note any substantial variations from the earlier two periods.

Of loans originated in February, 67 percent were for the purpose of refinancing and 33 percent for purchase; 25 percent were for FHA backed mortgages and 67 percent for conventional loans.  Just under 20 percent of applications were for 15-year fixed-rate mortgages (FRM), a number that was fairly consistent across all three periods, but the share of adjustable rate mortgages (ARM) dropped by nearly 50 percent from August to February when ARM applications represented only 4.3 percent of applications.

To get a meaningful view of lender "pull-through", Ellie Mae reviewed loan applications initiated within the previous 90 days to calculate a closing rate and found that nearly 48% of all applications closed. There were a higher percentage of purchase mortgages closing (60%) than refinances (42%).

The average loan took 44 days to close with refinanced loans averaging 48 days and purchase loans 44 days.  Closed loans had an average FICO score of 750 while loans that were denied averaged a FICO of 699.  Closed loans had a loan to value (LTV) ratio of 76 and a debt-to-income (DTI) ratio of 23/34 while denied applications averaged an LTV of 83 and a DTI of 28/44. 

There was substantial variation in these numbers for FHA vs. conventional loans that were accepted or denied.  Denied conventional applications had an average FICO of 720, LTV of 77 and DTI of 27/43 for refinancing and 732, 81, and 24/41 for purchase applications.  Applications denied for FHA refinancing had average FICOs of 667, LTVs of 87 and DTIs of 29/46 and for purchases 666, 94, and 40/46. 

There were also considerable differences between the characteristics for conventional loans that were closed and those that were denied with LTVs several points higher and back-end DTIs 10 to 12 points higher for denied loans and FICO scores around 50 points lower.  However, the only real difference between closed and denied FHA loans was the FICA scores, 55 points for refinances and 35 points for purchases.

February figures reflected some tightening of standards over the three periods in the study.  FICO scores on closed loans of all types rose 9 points over August figures while average LTV ratios were down 3 points and both front and back end DTI scores were 2 points lower.

 "In February, it appears that lenders continued to be very cautious in terms of credit quality, down payments and valuations," said Jonathan Corr, chief operating officer of Ellie Mae. "The average credit score on closed loans was 750 last month, up from 740 six months ago; meanwhile, the average loan-to-value ratio was 76%, a decrease of 3% from August's average.

"If you look at the full report on our website, you'll see the impact of the higher underwriting requirements for refinance that were in place in February," Corr said. "Last month, if your FICO score was below 720 or you had a down payment or equity of less than 25%, there was a good chance that your refinance application for a conventional loan was denied or you were offered a significantly less attractive interest rate. The average DTI ratio for such a denial in February was 27/43.