Potential Mortgage Default Risk Remains High

first_img Governmental Measures Target Expanded Access to Affordable Housing 2 days ago in Daily Dose, Featured, Headlines, Loss Mitigation, News Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Servicers Navigate the Post-Pandemic World 2 days ago Previous: SIGTARP Offers Recommendations for HAMP Next: Felty and Lembright Welcomes New Hire Home / Daily Dose / Potential Mortgage Default Risk Remains High American Enterprise Institute Debt-to-Income Ratio default National Mortgage Risk Index Risk 2014-05-01 Tory Barringer Servicers Navigate the Post-Pandemic World 2 days ago  Print This Post Related Articles The Week Ahead: Nearing the Forbearance Exit 2 days ago Share Save Data Provider Black Knight to Acquire Top of Mind 2 days agocenter_img Potential Mortgage Default Risk Remains High The Best Markets For Residential Property Investors 2 days ago Demand Propels Home Prices Upward 2 days ago Demand Propels Home Prices Upward 2 days ago Despite a slight pullback in March, risk in the mortgage marketplace remains perilously high, say researchers.The American Enterprise Institute’s (AEI) International Center on Housing Risk released this week its latest National Mortgage Risk Index (NMRI), a measure of likely loan default risk rates in the event of another economic crisis. For its March data, the group calculated that under stress, 11.5 percent of recent home purchase mortgages would default, just down from 11.6 percent in February.Even with the decline—the second consecutive drop—potential default rates remain nearly double the 6 percent maximum AEI says is conducive to a stable market, suggesting there’s been no “discernible impact from QM [Qualified Mortgage] regulation,” the group asserts.As AEI points out, while all of the purchase loans covered in its index classify as QM, half have a down payment of 5 percent or less, and nearly one-quarter have total debt-to-income (DTI) ratios exceeding 43 percent. Federally guaranteed loans are exempt from the 43 percent cutoff.“High DTI loans are risky, with a stressed default rate well above that for all loans regardless of DTI,” analysts said.Also troubling is the fact that while the composite index was down over the month, expected default rates among loans held by Fannie Mae and Freddie Mac continued to climb up to 6 percent, while the rate for loans insured by the Federal Housing Administration (FHA) and Rural Housing Services (RHS) inched up to 24.1 percent. Both values represent new highs for each category.Explaining the decline in the headline index, AEI noted the share of high-risk loans decreased again, hovering just above 35 percent, partially due to a fall in FHA loan share.Ahead, the Center on Housing Risk sees no let-up in risk rates, especially as lenders—and some regulators—move to open up credit standards to allow more borrowers in.“In a housing boom, mortgage lending moves out the credit curve,” the group said. “Credit risk is rising as political pressures are again pushing for degrading lending practices.” Sign up for DS News Daily The Best Markets For Residential Property Investors 2 days ago May 1, 2014 762 Views Data Provider Black Knight to Acquire Top of Mind 2 days ago Tagged with: American Enterprise Institute Debt-to-Income Ratio default National Mortgage Risk Index Risk Subscribelast_img read more