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Borrowers with Low Credit Scores Found it Easier to Get a Home Loan in 2014

But credit tightened for borrowers with low down payments at end of year, according to the Zillow Mortgage Access Index

Apr 30, 2015

SEATTLE, April 30, 2015 /PRNewswire/ -- Mortgage lending standards loosened in 2014, making it easier for borrowers with low credit scores to get a mortgage, but borrowers with low down payments saw financing options begin to tighten in the fourth quarter, according to the quarterly Zillow® Mortgage Access Index (ZMAI). Overall, it was still easier for home buyers to access credit in 2014 compared with the prior year.

The Index, which currently stands at 69.4, dropped 2.1 points from the third to the fourth quarter, but is up more than 18 points from the fourth quarter of 2013. An Index reading of 100 would indicate that credit has returned to pre-housing bubble levels.

In 2014, lenders lowered their credit score requirements for conventional loans, opening the door to a new subset of borrowers - those with scores of less than 680. Borrowers who were previously only eligible for an FHA loan due to their low credit scores are now more likely to get a less expensive conventional loan with private mortgage insurance.  At the end of 2014, it was easier for borrowers with low credit scores to get conventional loans than it had been since 2008.

However, in the fourth quarter of 2014 lenders began to offer fewer financing options to borrowers with low down payments. This move forced borrowers who may have previously been able to get a conventional mortgage with a low down payment back to FHA loans. Additionally, the rate of creative financing like second mortgages or piggyback loans, which are typically used to avoid paying mortgage insurance, fell in the quarter.

"After several years of rapidly increasing access to home loans, lenders are taking a pause," said Dr. Stan Humphries, Zillow chief economist. "With the mini-boomlet in refinance activity late last year, perhaps there was less business imperative for banks to attract new customers with looser lending. Don't expect this trend to continue though. Instead, credit access should continue its slow normalization, although it's doubtful it will ever return fully to where it was pre-bubble. The new normal likely lies somewhere between current conditions and those of the early 2000s."

Variables Used to Calculate the ZMAI

Q4 2013

Q3 2014

Q4 2014

Private Mortgage Insurance (PMI) Percentage i




Second Mortgage Prevalenceii




Debt-to-income ratioiii




Credit Scoreiv




Non-conforming Loansv




Mortgage Rate Spread (percentage points)vi




Zillow Mortgage Quotesvii




Zillow Mortgage Access Indexviii





About Zillow:

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.

Zillow is a registered trademarks of Zillow, Inc.

i 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.

ii 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.

iii 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.

iv 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.

v 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.

vi 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.

vii 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.

viii Zillow Mortgage Access Index (ZMAI): The Index is a weighted average of these seven variables.  The weights are determined using a statistical process known as principal components.  Read more about the methodology on the Zillow Real Estate Research.




For further information: Alison Paoli, Zillow, 206-757-2701 or