CoreLogic: Mortgage Credit Risk Increased in Q3

Mortgage credit risk increased in the third quarter to reach a score of 111.1 on the CoreLogic Housing Credit Index (HCI), up 18 points from a score of 93.1 in the third quarter of 2016.

Even with this increase, credit risk in the third quarter was still within the benchmark range of the HCI, the software, data and analytics firm says.

The benchmark range of 90 to 121 is measured as within one standard deviation of the average HCI value for 2001-2003, considered to be the normal baseline for credit risk.

The increase in the credit risk, as measured by the HCI during the past year, is partly due to a shift in the purchase-loan mix to more investor loans and to a shift in the refinance-loan mix to borrowers with lower credit scores and higher debt-to-income, CoreLogic says in a release.

This trend for refinance loans may reflect the rise in the Federal Housing Administration-to-conventional share of refinance activity.

“The CoreLogic Housing Credit Index is up compared to a year ago, in part reflecting a shift in the mix of loans to the purchase market, which typically exhibit higher risk,” says Frank Nothaft, chief economist for CoreLogic. “Further, the index shows higher risk attributes for both purchase and refinance loans, although the risk levels still remain similar to the early 2000s.

“When looking at the two most recent quarters in which the mix of purchase and refinance loans were similar, the CoreLogic Housing Credit Index for each segment remained stable,” Nothaft adds. “Looking forward to 2018, with continuing economic and home price growth, we expect credit-risk metrics to rise modestly.”

As per the report, the average credit score for homebuyers in the third quarter was 746, up from 739 in the third quarter of 2016. The share of homebuyers with credit scores under 640 was 2%, compared with 25% in 2001. In other words, the third quarter share was less than one-tenth of the share in 2001.

The average DTI was unchanged from a year earlier. The share of homebuyers with DTIs greater than or equal to 43% was 22%, down slightly from 24% in the third quarter of  2016, but up from 18% in 2001.

The average loan-to-value ratio for homebuyers was 84.9%, down from 86.4% in the third quarter of 2016. The share of homebuyers with an LTV greater than or equal to 95% had increased by almost one-third compared with 2001.

The investor share of home-purchase loans was 4.4%, up from 4.0%.

The share of home-purchase loans secured by a condominium or co-op building was 11.5%, up from 10% in in the third quarter of 2016.

Low- or no-documentation loans increased slightly to 2.2% of the total market, up from 1.5% a year earlier.

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