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National Mortgage Risk Index down slightly in July but trouble ahead

FHA not compensating for high DTI loans; GSEs only partially

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AEI’s National Mortgage Risk Index for home purchase loans stood at 11.41% in July, down almost 0.25% from June.

Nearly 200,000 loans were added to the NMRI in July, as home purchase volume hits its highest level since November 2013. 

This brings the total number of loans included in the index to 3.66 million.

There continues to be little discernible volume impact from the QM regulations on the share of loans with debt-to-income ratios greater than 43%. 

AEI’s International Center on Housing Risk co-directors Edward Pinto and Stephen Oliner compile and analyze the data monthly to provide a look at the risk level of mortgages under the current financing regulations and practices. 

Pinto says that the Federal Housing Administration continues not to compensate for the riskiness of these high-DTI loans by tightening other underwriting criteria, while Fannie Mae and Freddie Mac are doing so only to a limited extent.

“Subprime lending by FHA issuers continues to grow in response to government calls for expanded use of the FHA credit box,” AEI says. “This risks fueling home price volatility, particularly in lower income and minority areas.”
 Using newly incorporated data, the NMRI has been revised to rate all loans based on month of first loan payment rather than date of securitization. 

In addition, the composite, FHA and RHS series have been extended back to November 2012 from August 2013.
The risk indices provide the first-ever measure of how mortgage loans originated month by month would perform under severely stressed conditions. 

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