JPMorgan Sounds Alarm: First Brands and Tricolor Bankruptcies Fuel Credit Stress, Bank Funding Costs Soar

Credit markets are feeling the heat as corporate defaults ripple through the financial system.

Funding Pressure Mounts

JPMorgan analysts warn that recent bankruptcies at First Brands and Tricolor have intensified credit stress across lending markets. The domino effect is pushing up banks' borrowing costs—just what the economy needs when everyone's already watching every basis point.

Banking Sector Squeeze

Financial institutions now face higher capital costs as market volatility spikes. The dual corporate collapses created precisely the kind of systemic worry that makes lenders tighten purse strings across the board.

Because nothing says 'stable financial system' like bankruptcies driving up everyone's cost of capital while bankers still collect their bonuses.

Key Takeaways

• New data shows that credit scores for home purchases hit their highest levels in six years, while credit scores for refinancing also hit mutli-year high levels. 
• The increase comes as mortgage rates were near their lowest levels in a year after remaining elevated for more than three years.
• Potential homebuyers and homeowners with lower credit scores could face more limited opportunities, experts said.

Credit scores for homebuyers in September reached their highest levels in at least six years as better-financed borrowers pounced on a drop in mortgage rates and lenders tightened their credit standards, new data showed.

The average credit score for mortgage purchases reached 736 in September, the highest level since real estate information firm Intercontinental Exchange (ICE) began tracking it. That’s well above the pre-pandemic levels of 2019, when the average credit score was about 10 points lower. A report from Realtor.com also similarly found that credit scores for mortgages were roughly 20 points above the national average.

That could mean that homebuyers with lower credit ratings are having a harder time getting a mortgage, experts said.

“This indicates a tightening of credit criteria in credit offerings, and that the majority of lenders are focusing on limiting risk,” said Phil Crescenzo Jr., vice president of the Southeast Division at Nation One Mortgage Corporation. “The impact to the lower credit score buyer may be limited offerings, a denial, or a higher interest rate.”

Why This Matters to Borrowers

Changes in the real estate market tend to reflect more broad U.S. economic trends. Rising credit scores for mortgage borrowers signal that homebuyers may have a harder time getting a home loan, even as rates have declined.

Decline in Mortgage Rates Brings in Better Scores

The uptick in mortgage loan credit scores comes as historically high borrowing costs have begun to decline, which experts said has helped increase demand in the housing market. 

Mortgage rates have been above 6% for more than three years, and even topped 7% at times. When rates fell below 6.3% in mid-September, they were at their lowest levels in nearly a year, providing an opportunity for better-financed buyers to jump into the market.

“While credit has been tight for some time now, the shift to higher credit scores in recent weeks is ... a function of who is stepping into the market to refinance or purchase a home as rates have improved,” said Danielle Hale, Realtor.com chief economist.

The average credit score for refinancing in September also surged to 722, up more than 30 points from a month ago, according to ICE data. The report found that homeowners with large mortgage loans jumped at the opportunity torefinance at lower rates.

“On the refinance side, it's typical for credit scores to rise when rates improve, as higher credit profile borrowers tend to have higher loan balances that require less rate incentive to break even on a refinance,” said Andy Walden, head of mortgage and housing market research at Intercontinental Exchange. “They may also be more financially savvy and may be watching rates more closely for refinance opportunities to arise.”

Related Education

Credit Scores Are A Critical Part of Mortgage Lending

Mortgage lenders look at many factors when evaluating a borrower for a home loan. While credit scores are one of the key factors, lending agents also look at a borrower’s income and savings, debt levels, down payment amounts and the type of mortgage. Credit scores can also impact the mortgage rate for borrowers.

“Credit score is a very big factor in a final interest rate offering, but not the only factor. For buyers that are serious about their credit, they are going to see the best terms,” Crescenzo said. 

Data compiled by credit rating agency Experian showed that in September, borrowers who had a credit score of 740 could qualify for a 30-year mortgage rate of 6.63%. For borrowers with a score of 700, the rate shot up to 6.83%, while those with credit scores of 660 were offered a 7.04% mortgage rate.