Mortgage loans continue to show signs of improvement according to recent 2013 data pulled from MARS (Mortgage Analysis Review Software) post-closing audits. According to this data, the first half of 2013 reports these changes:
►A jump in loan eligibility from 96.66 percent in 2012 to 96.44 percent in 2013
►A decrease in repurchase potential from 6.08 percent in 2012 to 3.40 percent for this year
►A decline in misrepresentation from 0.26 percent in 2012 to 0.15 percent in 2013
►Improvements in loan quality with a drop of average credit scores for loans tested for eligibility from 748 in 2012 to 739 this year
►Back ratios favor improvement for borrowers with 23/33 in 2012 to 23/35 for 2013
The results of this data reflect a favorable shift towards borrowers. However, said Tommy A. Duncan, CEO of Quality Mortgage Services, “There may be a shift in risk and eligibility validations as the market moves into a dominant purchase and first time home buyer market. Although this data helps us predict shifts in the industry, quality control programs should continue to validate income, employment, and complex tax returns.”
Quality control audits for first-time home-buyers are challenging due to the fact that 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.
With the higher interest rates and the refinance market going away, it appears that the market will return to a more “government mortgage” type of program. Pre-funding programs will be tested and underwriters can expect to become more familiarized with more manual underwriting procedures as loans may be more complex.