In a down mortgage lending market, subprime stays positive

As the mortgage market continues to slowdown, for many, many reasons, there is one area where consumers are getting their credit reports pulled more than since the recession: the subprime mortgage market.

While banks may remain reluctant to penetrate the below 620 credit score market, other lenders are less trepidatious.

According to Transunion’s survey of third quarter credit reports, the subprime mortgage risk tier saw modest origination growth of 3.4% year-over-year.

This represents the largest volume of subprime loans originated in the second quarter post-recession.

There are 5 mortgage lending trends in the survey, which also includes info in personal, auto and credit cards financing.

Here’s the important stuff for LendingLife readers:

1. Mortgage delinquencies have consistently dropped every quarter since Q4 2009.
2. In the subprime risk tier this improvement was particularly noticeable, dropping to 18.62% from 20.44% over the same period last year.
3. Mortgage originations decreased by 0.4% year-over-year, continuing a trend of declining originations since Q2 2017.  Consumer-level delinquencies continue to show consistent improvement, dropping every quarter since Q4 2009.
4. Delinquencies declined to 1.7% in Q3 2018, compared to 1.9% at the same time last year. This was largely driven by drops in the near prime risk tier, where delinquencies dropped by 15% year-over-year, and the subprime risk tier which declined 9% year-over-year. 
5. Of the largest MSAs, Seattle, New York, and Boston experienced the largest declines in delinquencies while Houston, Dallas, and St. Louis experienced the smallest declines in delinquencies.

“The decline in mortgage originations is likely the impact we’re seeing from a combination of rising interest rates, steep home prices appreciation, and limited starter home supply,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion.

“On the refinance side, as interest rates rise, many consumers will no longer have an incentive to refinance their mortgages. On the purchase side, those rising interest rates coupled with rising home prices lead to a ‘double whammy’ for consumers interested in ‘moving up’ into a more expensive home, leading many to decide to stay in place. This in turn puts pressure on starter home supply. This trend will likely continue into the near future,” he added.