Mortgage credit risk on the upswing

by Francis Monfort02 Oct 2017
A change in the mix of loan types drove an increase in mortgage credit risk for new originations during the second quarter, according to the Housing Credit Index released by CoreLogic.

During the quarter, the index rose to 117, an increase of 20 points from the second quarter of 2016. CoreLogic said that despite the increase, risk during the quarter remains within the index range for 2001 to 2003, which is considered a normal baseline for credit risk.

“Mortgage risk for new originations increased modestly in the second quarter of 2017, but much of this rise was due to a small shift in the mix of loan types to more investor and condominium loans, which have slightly higher risk attributes,” CoreLogic Chief Economist Frank Nothaft said. “Despite the somewhat higher risk of new origination loans, purchase mortgage underwriting remains relatively clean with an average credit score of 745 and low delinquency risk.”

The share of investor loans out of home purchase loans was 4.2% during the quarter, an increase from the 3.6% share in the year-ago quarter. The share of home-purchase loans secured by a condominium or co-op building was 1.1% during the period, an increase from the 9.6% in the second quarter of 2016.

The index found that average credit scores for homebuyers rose nine points during the second quarter from 736 in the second quarter of 2016. The debt-to-income ratio of homebuyers averaged 36 during the quarter, unchanged from the year-ago period.

Homebuyers had an average loan-to-value ratio of 85.5% during the period, a drop of almost two percentage points from the 87.4% during the second quarter of 2016. Meanwhile, the share of loans that had low or no documentation remained small at 1.7% of home-purchase loans over the past year, compared to the previous 1.5% share.

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