https://calculatedrisk.substack.com/p/mortgage-originations-by-credit-score
The NY Fed released the Q1 Quarterly Report on Household Debt and Credit this morning. Here are a couple of charts from the report.
The first graph shows mortgage originations by credit score (this includes both purchase and refinance). Look at the difference in credit scores in the recent period compared to the during the bubble years (2003 through 2006). Recently there have been almost no originations for borrowers with credit scores below 620, and few below 660. A significant majority of recent originations have been to borrowers with credit score above 760.
Solid underwriting is a key reason I’ve argued Don't Compare the Current Housing Boom to the Bubble and Bust, Look instead at the 1978 to 1982 period for lessons
From the NY Fed:
Mortgage originations, measured as appearances of new mortgages on consumer credit reports and which include refinances, were at $859 billion in 2022Q1. This represented a decrease from the high volumes seen during 2021, but still was $197 billion higher than the volume seen in 2020Q1, just before the pandemic hit.
The median credit score of newly originated mortgages declined again, to 776, down from a series high in 2021Q1 of 788. Yet, credit scores on newly originated mortgages remain very high and reflect continuing high lending standards.
The second graph shows mortgage originations by age (this includes both purchase and refinance originations). Although originations increased recently for all age groups, there was a large increase for the 30-39 age group. This is the prime first-time homebuyer cohort - and is what was expected based on demographics.
The NY Fed Liberty Street Economist has a new blog post today: Refinance Boom Winds Down. This is a key paragraph (see post for some interesting graphs):
The memory of the last housing boom and bust remains a troubling reminder for many Americans as home prices soar. The collapse of the housing market left significant financial scars on households–millions of whom were left owing more on their properties than they were worth, and with more than 10 million Americans experiencing a foreclosure. But there are many differences in the mortgage market now compared to 2007. First, unlike the 2003-06 housing boom, mortgage debt has been rising much more slowly than home values. As above, the number of mortgages originated remains far lower than in the early part of our time series, which would be even lower if population adjusted. And finally – loans being originated now are going to higher credit score borrowers; more than 70 percent of mortgages originated in the last two years were to borrowers with credit scores over 760, compared to 38 percent between 2003-06. Subprime mortgages remain effectively non-existent. With house prices continuing to rise and housing affordability a growing concern, there remain risks, and we will continue to monitor the evolution of the housing and mortgage market.
emphasis added
The last graph is based on data from the Fed’s Q1 Financial Accounts of the United States. This shows that mortgage debt, as a percent of GDP, has been declining even as house prices have soared. Even if we see house prices decline in some areas, there will be very few forced sales since most borrowers have high credit score and significant equity in their homes - so we will not see cascading price declines as happened during the housing bust.
The bottom line is, as the NY Fed noted: "Credit scores on newly originated mortgages remain very high and reflect continuing high lending standards".
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