Low credit scores are no longer a deal killer.
According to the data from latest Equifax National Consumer Credit Trends Report, mortgage originations to people with subprime credit scores continued to climb steadily over the first five months of 2015.
Each categories of mortgages – first mortgages, home equity installment loans and home equity lines of credit – showed significant increases in subprime originations over the same period a year ago. Equifax says, subprime approvals remain a relatively small percentage of overall mortgage approvals and the total number of is well below the pace of subprime lending prior to the Great Recession.
One area where lending to those with low credit scores remains relatively slow is the loans and home equity lines of credit. Of the more than 525,000 HELCOs ordinated in the first five months of 2015, just 7,800 have an Equifax Risk Score of less than 620.
Chief economist at Equifax, Amy Crews Cutts, says that “the data makes it very clear that almost nobody is getting HELCOs if they don’t have a credit score above 620. But we are seeing a rise in first mortgage and home equity installment loan origination subprime shares. It appears that American lenders still believe in second chances, and without any subprime loans, there would be no second chances in the housing market. The underwriting on mortgages today is tough on everyone, and we believe that the subprime lending … is being unwritten even more carefully.”
The data also finds that lenders have taken steps to limit risk when lending to people with subprime credit scores. For example, in 2008, more than 10 percent of first mortgage originations went to borrowers with credit scores below 620. In 2015, that figure has dropped by more than half to 4.6 percent of first mortgage originations.
