The National Mortgage Risk Index for Agency purchase loans rose in December to 11.84%, up from 11.69% in November, according to the American Enterprise Institute’s International Center on Housing Risk.

The risk indices for Federal Housing Administration and Veteran’s Affairs hit series highs.  

 This follow’s the series high set in November.

All of the indices except Fannie Mae and Freddie Mac rose in December and hit series highs.

If FHA were to adopt VA’s risk management practices, the composite index would drop to about 9%.

Click to enlarge

(Source: American Enterprise Institute)

A dramatic decline in purchase loan market share for large banks continued in December, offset by an equally dramatic increase in the nonbank share.

“Large banks are the only lender type with net MRI decline since November 2012; hence, we must look beyond large banks to asses credit trends,” AEI said.

Click to enlarge

(Source: American Enterprise Institute)

The share for the combination of government-guaranteed and private-sector loans was estimated to be 50% in December, well above the comparable figure in the latest NAR survey of homebuyers (36%).

Other findings include:

  • 37% of Fannie/Freddie loans have total DTIs > 38%, up from 14% in 1990 (based on Fannie random sample).
  • FHA and VA have a sizable share of loans with DTIs > 50%, an extremely high pre-tax payment burden. VA’s residual-income underwriting is key to limiting defaults.
  • High total DTIs crowd out participation in defined contribution retirement plans such as 401(k)s, most of which come with employer match. These provide a reliable and attractive means for private wealth accumulation, particularly for lower-income families.