Could lenders’ pain be your gain if you’re shopping for a home mortgage? Maybe.
Though it hasn’t been in the headlines, mortgage companies are having a challenging year. Not only have total originations of new loans declined as the refinance market shrinks because of rising interest rates, but many lenders could be staring at red ink and staff layoffs, as well. Michael Fratantoni, chief economist for the Mortgage Bankers Association, the industry’s largest trade group, says the “typical” lender in the U.S. may “not be profitable” when the books are closed on the first quarter of 2018. Inside Mortgage Finance, a trade publication, reports originations “tanked” during the first three months of 2018, hitting their lowest level in three years.
Possibly as a result, competition for new home-purchase loan applications is on the upswing. One bellwether: LendingTree, the popular online marketplace where banks and mortgage companies compete for borrowers’ business, tells me that shoppers for home loans are receiving significantly more offers on average through its lender network compared with a year ago. “It’s getting very competitive,” said LendingTree chief economist Tendayi Kapfidze, and “lenders are expanding their credit box” to pull in more borrowers. Some may not even be fully passing along recent rate increases, he added.
Another indicator: Lenders appear to be offering slightly more attractive deals. The Mortgage Bankers Association’s mortgage credit availability index — which monitors credit-score requirements, down payments and other key underwriting terms at major lenders — improved by 1.9 percent for conventional (nongovernment) mortgages in April. This suggests posted mortgage terms were slightly more favorable to consumers than they had been previously.
Still another sign: The latest quarterly Default Risk Index, compiled by credit bureau TransUnion and credit score developer VantageScore Solutions and released last week, found that while lenders in the auto-loan, student-loan and bank credit-card sectors are tightening up on terms to applicants, mortgage lenders appear to be easing. Lenders seeking higher loan production are willing to take on slightly more risk.