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Mortgage

Fannie, Freddie loans hit series high in National Mortgage Risk Index

February numbers show QM not helping, GSEs not compensating for high CLTV loans

With about 204,000 loans added in February, up from 186,000 a year earlier, the composite National Mortgage Risk Index for Agency purchase loans, compiled by the AEI’s International Center on Housing Risk, stood at 11.93% for the month.

That’s down 0.4 percentage points from January but up 0.1 percentage point from the average for the prior three months and 0.8 percentage point from a year earlier.

Fannie Mae, Freddie Mac, Federal Housing Administration, and VA loans all hit series highs in terms of risk.

First-time buyer and repeat buyer NMRIs stood at 15.07% and 9.09%, respectively.

The study concludes that despite Qualified Mortgage rules, and because of the introduction of 97% LTV loans, risk is growing.

“QM regulation (is) not limiting volume of high DTI loans,” the report says. “Fannie/Freddie (are) not compensating for riskiness of high CLTV loans.”

FHA’s NMRI stood at 24.48% in February, up 0.2 percentage point from the average for the prior three months and 1.6 percentage points from a year earlier. ?

The report says that risk layering is high as NMRIs for loans with CLTV ≥ 95%, DTI > 43% and FICO < 660 are at series highs in terms of risk.

“FHA is not compensating for the riskiness of high DTI loans; Fannie and Freddie are compensating only to a limited extent,” the authors say. “The softness in mortgage lending is not due to tight standards but to reduced affordability, loan put-back risk, and slow income growth for most households.”

AEI’s Mortgage Risk Index measures the safety of mortgage lending in the United States.

It uses the default experience of loans originated in 2007 as a benchmark to quantify how new mortgage loans would perform if they were hit with a market collapse on par with the recent crisis.

The index classifies loans as low-risk, medium-risk, and high-risk on a monthly basis at national, regional, and local levels. The national index, the NMRI, covers approximately 75% of all new mortgages and nearly all government-issued mortgages.

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