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Lending

Housing risk rising as more loans don't meet QM on DTI

An early look at report shows loan climate getting riskier

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On April 28 the International Center on Housing Risk will release its briefing on the National Mortgage Risk Index and its State Mortgage Risk Indices for March 2014, but HousingWire has a preview available now and the risk is growing.

The two indices provide a measure of how mortgage loans originated month by month would perform under severely stressed conditions.

International Center on Housing Risk co-directors Edward Pinto and Stephen Oliner will analyze the riskiness of single-family mortgage originations based on data through March 2014.

This month’s NMRI update shows about 24% of all purchase loans have a debt-to-income ratio greater than the QM limit of 43%.

The Federal Housing Administration leads with 45% of purchase loans exceeding the 43% DTI limit. 

Indices for Fannie/Freddie and FHA/RHS both hit new highs in March. Roughly 117,000 loans were added in March, bringing total in NMRI to 2.57 million.

Risk levels remain higher than is conducive to long-run market stability, their report says, with no discernible impact from QM regulation.

What are their reasons for caution?

“In a boom, mortgage lending moves out the credit curve; political pressures are again growing for degraded lending practices,” the report states.

Further, they say, the QM credit box is broad and deep. All the home purchase loans covered by the NMRI today are qualified mortgages, but half have a down payment ≤ 5%, with an average NMRI of 19%.

Also, nearly one-quarter have a total debt-to-income ratio > 43%, also with an average NMRI of 19%.

One-third of FHA’s home purchase loans have a FICO score below 660 (the demarcation line for subprime credit); these have an average NMRI of 35%.

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