The number of mortgage loan originations to purchase a single-family home dropped from 7.4 million in 2005 to 3.2 million in 2014, a lingering aftershock from the housing crisis.
However, during this period, the denial-rate for home-purchase loan applications dropped to 13.2 percent in 2014 and was 8.1 percentage points lower than its peak of 18.7 percent in 2007. Could this be the result of a decline in applications from riskier applicants?
CoreLogic examines this topic in a new Market Trends article.
“But if credit standards are relatively ‘tight’ today, shouldn’t the denial rate be higher than it was in 2005 and 2006?” CoreLogic asks.
The answer lies in the credit scores of Americans seeking to buy a home.
“The share of credit scores below 700 for applications has declined and has been offset by a greater share of credit scores above 740,” CoreLogic concludes.
Consumers are more cautious now, and cautious or discouraged consumers make it appearing as if credit is tightening.
In 2005, the credit score for the first percentile (lowest rung) ranged from 520 to 540, and saw a sharp rise during the Great Recession, and is currently running in a range of 620 to 630.