Default Risk Increases For Loans Backed By Fannie Mae And Freddie Mac

According to Milliman, global consulting and actuarial firm, the default risk for government-sponsored enterprise (GSE) acquisitions (purchased and refinanced loans backed by Freddie Mac and Fannie Mae) increased for the first time since Milliman began tracking mortgage defaults in 2019. 

The Milliman Mortgage Default Index (MMDI) shows the latest monthly estimate of lifetime default risk on U.S.-backed mortgages. The MMDI rate for Freddie Mac and Fannie Mae loans grew from 1.38% in the fourth quarter of 2020 to 1.52% in the first quarter of 2021. 

“For Freddie and Fannie mortgages that originated in early 2021, we're seeing an increase in the potential for default primarily because of economic risk," said Jonathan Glowacki, a principal at Milliman and author of the MMDI. “Home-price appreciation for these loans is more pessimistic compared to previous quarters, despite underwriting and borrower risk remaining fairly consistent.” 

Although it’s difficult to estimate how prices will react post-pandemic, the MMDI shows a baseline forecast of future home prices. For Ginnie Mae loans, the MMDI rate increased from 8.27% in the fourth quarter of 2020 to 9.3% in the first quarter of 2021. This is mainly due to a major decline in the volume of refinance loans in Q1 compared to last quarter.

For more on the MMDI, go to www.milliman.com/mmdi/.