Mortgage Credit Risk Higher Over Past 12 Months

Mortgage credit risk increased from the third quarter of 2016 to the third quarter of 2017, according to data from the CoreLogic Housing Credit Index (HCI), which analyzes borrower credit score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), investor-owned status, condo/co-op share and documentation level.

 

CoreLogic’s HCI reached 111.1 in the third quarter, up 18 points from 93.1 one year earlier. Among the individual components within the HCI, the average credit score for homebuyers increased 739 to 746 from 2016’s third quarter to this year’s third quarter, while the average DTI for homebuyers was unchanged from 36 one year ago. The LTV for homebuyers dropped by from 86.4 percent in the third quarter of 2016 to 84.9 percent in this year’s third quarter, while investor share of home-purchase loans increased slightly from 4 percent to 4.4 percent over the same time period. The share of home-purchase loans secured by a condominium or co-op building increased 11.5 percent in this year’s third quarter from 10 percent one year ago, while low- or no-documentation loans increased to 2.2 percent from 1.5 percent over the same period.

 

"The CoreLogic HCI 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," said 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 HCI for each segment remained stable. Looking forward to 2018, with continuing economic and home price growth, we expect credit risk metrics to rise modestly."