For Borrowers, A Home Loan is Getting Easier to Obtain

Getting a mortgage today is significantly easier than it was a year ago and markets are rapidly approaching pre-crisis credit conditions, according to the inaugural Zillow® Mortgage Access Index (ZMAI). Now, many borrowers who last year may have only been eligible for FHA loans due to a low credit score or down payment are being offered conventional loans with private mortgage insurance, opening them up to options with more competitive terms and rates.

Mortgage credit was easiest to obtain in August 2004, according to the Index, but became marginally tighter over the next few years. In May 2007, both the housing and mortgage availability began a multi-year plunge, leaving home values down more than 22 percent and credit the tightest in recent history. Today, access to mortgage credit has improved significantly, and is roughly two thirds of the way back to 2002 pre-crisis levels.

"The reality of what borrowers are experiencing in the mortgage market does not match the popular narrative. Lenders are, in fact, opening their doors a bit wider, especially for borrowers with credit scores below 700," said Stan Humphries, Zillow chief economist. "Modestly easier credit will help first-time buyers get into the market, which will have many benefits. Given all the market has been through the past few years, this is a natural place to be in the housing cycle. We're a long way from again letting credit get too loose, but we'll need to remain vigilant not to repeat the mistakes of the recent past."

A high number in the Zillow Mortgage Access Index means credit is easier to obtain, while a lower number means credit is tighter.

The ZMAI uses seven variables to measure access to credit. Of those variables, the bottom 10th percentile of credit scores accepted, the prevalence of second mortgages, and the number of quotes on Zillow offered to mortgage inquirers saw the greatest positive movement in the six most recent months of ZMAI.

Variables used in the Zillow Mortgage Access Index

• Credit Score: The lowest 10th percentile of credit scores to reveal which borrowers were on the cusp of denial in the period.  Lower credit score approval indicates mortgage credit loosening.
• Debt-to-income ratio: The 90th percentile of borrower debt-to-income (total monthly debt payments as a percent of gross monthly income). An increase in debt-to-income ratios suggests mortgage credit is loosening.
• Private Mortgage Insurance: The proportion of low down payment loans that are privately insured. Since FHA loans cater to lower credit scores but often come with higher costs an increase in privately insured mortgages would indicate mortgage credit is loosening.
• Second Mortgage Prevalence: Home equity loans and lines of credit as a percent of all loans in a given period. An increase in second mortgages suggests mortgage credit is loosening.
• Non-conforming Loans: Amongst loans with down-payments over 20%, the percentage that are non-conforming.  An increase in non-conforming loans signals lenders are willing to take on additional risk and therefore would indicate mortgage credit is loosening.
• Mortgage Rate Spread: The spread between 30-year fixed mortgage rates and the 10-year treasury rates. A narrowing spread suggests mortgage credit is loosening.
• Zillow Mortgage Quotes: Tracks the monthly average number of quotes given to borrowers with credit scores between 600-640 compared to the number given to borrowers with credit scores of 760 or higher. The closer the two numbers are, the easier mortgage credit is to obtain.

The quarterly Zillow Mortgage Access Index will be released in April, July, October and January moving forward. Data on the individual variables used to calculate the Index will be available on Zillow Real Estate Research.

Zillow Research

Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. In 2015, Dr. Humphries co-wrote and published the New York Times' bestselling "Zillow Talk: The New Rules of Real Estate." Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z), and headquartered in Seattle.

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