Mortgage credit risk remained in low risk for the last two quarters of 2016, while credit was tighter than Q4 2015, according to new data from CoreLogic.
The fourth quarter had the highest quality of home loan originations since 2001, according to CoreLogic.
“Mortgage loans closed during the final three months of 2016 had characteristics that contribute to relatively low levels of default risk,” said CoreLogic Chief Economist Frank Nothaft. “While our index indicates somewhat less risk than both a quarter and a year earlier, this partly reflects the large refinance share of fourth-quarter originations. Refinance borrowers typically have a lower LTV and DTI than purchase borrowers.”
Nothaft added that mortgage rates increased since November and will grow more this year.
“Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to harder-to-qualify borrowers,” Nothaft said. “As this occurs, we should observe our index signaling a gradual increase in default risk. The evolution to a more purchase-dominated lending mix is also likely to increase fraud risk.”
Homebuyers’ average credit score showed a year-over-year increase of four points in the fourth quarter, from 733 in Q4 2015 to 737. Year-over-year, the debt-to-income ratio remained at 36%.
12 million consumer credit scores about to go up
Morning Briefing: It was easier to get a mortgage in February