Closed Loan Credit Scores Drop to Four-year Low

Credit scores on closed loans reached five consecutive months of decline in October, according to Ellie Mae.

In its Origination Insight Report, the mortgage processing software company found that FICO scores for closed loans averaged 722 in October, the lowest level since August 2011 — when this data was first reported. Purchases made up 55% of closed loans for the month and the average loan-to-value ratio was 80%.

Meanwhile, the average Federal Housing Administration refinance FICO score dropped 7 points, to 654, and the average Veteran Affairs purchase loan FICO score fell to its lowest level since April, 705.

Debt-to-income ratios have simultaneously increased, averaging 25% on the front end and 39% on the back end. But the closing rate stayed level, at 71%.

The impact of "Know Before You Owe," the filing disclosure rules implemented in early October, remains to be seen, said Ellie Mae's president and CEO Jonathan Corr in a Nov. 18 press release.

"The time to close loans remained a constant 46 days for yet another month, while the closing rate on purchased loans has stayed above 70%," he noted. "We may begin to see time to close increase in the November data as the new closing disclosures are utilized for the first time."