Is Tighter Credit for the Better?

It’s no secret underwriting standards have tightened in recent years, and while many decry the heightened standards for making homeownership less accessible to some Americans, CoreLogic economist Sam Khater pointed out in a report released Wednesday that heightened standards are undoubtedly impacting delinquency rates for the better.

“While there has been much consternation about underwriting being too tight in the context of forthcoming mortgage regulations, one underappreciated outcome has been the very good performance of mortgages during the last few years,” Khater said in an article titled “Tight Credit Results in Flawless Performance,” which was part of CoreLogic’s most recent MarketPulse.

“Tighter credit results in flawless performance,” Khater said.

The serious delinquency rate, which includes mortgages 90 or more days past due, in foreclosure or REO, stands at 5.4 percent as of July, according to CoreLogic.

While still significantly higher than the historical norm of 1 percent, the current rate has come a long way since its peak of 8.5 percent in January 2010, according to CoreLogic data.

Taking an even closer look, Khater examines 2013 vintage loans and compares them to vintages from years past.

Over the first half of this year, the serious delinquency rate for loans originated this year was six basis points, according to Khater.

This is down drastically from the 108 basis points for loans originated in 2007, which is the worst year in the 2000s, Khater noted.

The current rate is also better than the rate recorded for 2003, a year when home prices were rapidly increasing. Serious delinquencies for 2003 vintage loans was 15 basis points, according to Khater.

Serious delinquencies for 2013 loans are also down from 10 basis points among loans originated last year.

“This clearly indicates that the most recent mortgage vintages are pristine relative to even the good performing years of the early 2000s,” Khater said.

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