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Lending

Housing risk rising as FHA not compensating for high DTI loans

Risks not being recognized

high risk

On May 27, the International Center on Housing Risk will release its briefing on the National Mortgage Risk Index and its State Mortgage Risk Indices for April 2014, but HousingWire has a preview available now and the risk is growing.

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 April 2014.

This month’s NMRI update shows about 22% of all purchase loans have a debt-to-income ratio greater than the QM limit of 43%.

It states that the Federal Housing Administration is not compensating for riskiness of high DTI loans; Fannie Mae and Freddie Mac are compensating only to a limited extent.

It also shows that the percentage of low-risk loans accounted for 41.8% of April activity, down from 46.5% in August 2013.

The FHA leads with 45% of purchase loans exceeding the 43% DTI limit. 

Indices for Fannie/Freddie and FHA/RHS both hit new highs in April.

Roughly 149,000 loans were added in April, bringing total in NMRI to 2.67 million.

Freddie’s share of low-risk loans has continued to decline and is approaching the level of Fannie.

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

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%.

Fully 35% 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%.

They will also look at the newed pressure for subprime lending.

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