Mortgage loans continue to show signs of improvement in the first half of 2013 compared to a year ago, according to data pulled from Qualified Mortgage Services’ Mortgage Analysis Review Software post-closing audits.
The data shows a decrease in repurchase potential from 6.1% in 2012 to 3.4% this year, as well a year-over-year drop in misrepresentations from 0.26% to 0.15%.
The MARS data also found improvements in loan quality with a decline of average credit scores for loans tested for eligibility from 748 a year ago to 739 now.
Additionally, back ratios favor progress for borrowers too, with 23/33 in 2012 to 23/35 for the first half of 2013.
Meanwhile, there was a jump in loan eligibility on a yearly basis, now at 96.4% compared to 96.7% a year earlier.
Overall, the results of this data reflect a favorable shift towards borrowers.
“There may be a shift in risk and eligibility validations as the market moves into a dominant purchase and first time homebuyer market,” said Tommy Duncan, CEO of Quality Mortgage Services, Brentwood, Tenn. “Although this data helps us predict shifts in the industry, quality control programs should continue to validate income, employment, and complex tax returns.”
For example, quality control audits for first time homebuyers are challenging because lenders need to show a consistency in income for at least two years. Also, this buyer usually requires additional sourcing in the form of a “gift,” which will then increase high ratios, Duncan says.
But with the higher interest rates and the refinance market going away, Duncan notes that it appears the market will return to a more “government mortgage” type of program in which pre-funding programs will be tested and underwriters can expect to become familiar with more manual underwriting procedures as loans may be more complex.