Mortgage originations to people with subprime credit scores continued to climb steadily over the first five months of 2015, according to data from the latest Equifax National Consumer Credit Trends Report. Equifax is one of the big three U.S. credit score companies.

Each category of mortgages – first mortgages, home equity installment (HE) loans and home equity lines of credit (HELOC) – showed significant increases in subprime originations over the same period a year ago. The number of first mortgage originations to borrowers with low credit scores was up 30.5 percent; HE loans was up 29.5 percent; and HELOCs rose 20.4 percent.

However, subprime approvals remain a relatively small percentage of overall mortgage approvals, Equifax says – and the total number 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 for HELOCs. Of the more than 525,000 HELOCs originated in the first five months of 2015, just 7,800 of them were considered subprime, having an Equifax Risk Score of less than 620.

“The data make it very clear that almost nobody is getting HELOCs if they don’t have a credit score above 620,” says Amy Crews Cutts, chief economist at Equifax. “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 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 underwritten even more carefully.”

Additional key data on subprime originations

Of the 3.26 million first mortgages originated year-to-date through May, 4.6 percent of consumers had an Equifax Risk Score below 620
1.5 percent went to borrowers with low credit scores
HE installment loans surged to their highest level since 2008
Subprime originations jumped sharply by 29.5 percent
The average origination loan amount of a new subprime HE loan climbed 11.6 percent year-to-year

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. Thus far in 2015, that figure has dropped by more than half to 4.6 percent of first mortgage originations.

“Despite the continuing rise in overall subprime originations, banks are still greatly limiting their high-risk exposure,” says Cutts.

Source: Florida Realtors