A survey from Fannie Mae found that lenders use credit overlays in a limited manner, with some variations based on channel.
The survey found that roughly 40% of lenders delivering loans to the government-sponsored enterprises or Ginnie Mae said they applied stricter credit overlays than those investors required. That figure rose to 60% within wholesale channels, according to lenders who originate or acquire loans through those channels.
Additionally, 64% of lenders who delivered loans to the GSEs or Ginnie Mae said they used credit overlays on a limited basis (20% or less of loan originations) when they applied them at all. Correspondent lenders and mortgage brokers were more likely to apply credit overlays than retail lenders.
As for the types of credit overlays utilized, higher credit scores were cited as the most common type applied. Fannie Mae said that this reflected the impact of the ability-to-repay and qualified mortgage rules that took effect January 2014. The next most-cited type was additional documentation requirements.
The survey, which polled senior mortgage executives this past May, also found that lenders reported a median 10% denial rate for both purchase and refinance markets in the past year, with similar denial reasons across lender sizes and types. For purchase applications, the most common reason for a denial was a high debt-to-income ratio, followed by low credit score and documentation quality. The list was similar for refinance applications, with insufficient collateral and appraisal issues replacing the documentation issues.
