CoreLogic: Mortgage Credit Risk Up in 3Q

CoreLogic, Irvine, Calif., said mortgage credit risk increased in the third quarter from a year ago, reflecting the gradual shift from a refinance market to a purchase market.

The company’s Housing Credit Index increased to 111.1, up 18 points from 93.a year ago. Even with this increase, credit risk in the third quarter is still within the benchmark range of the HCI, said CoreLogic Chief Economist Frank Nothaft. The benchmark range of 90 to 121 is measured as within one standard deviation of the average HCI value for 2001-2003, considered to be the normal baseline for credit risk.

“The CoreLogic Housing Credit Index is up compared to a year ago, in part reflecting a shift in the mix of loans to the purchase market, which typically exhibit higher risk,” Nothaft said. “Further, the Index shows higher risk attributes for both purchase and refinance loans, although the risk levels still remain similar to the early 2000s. When looking at the two most recent quarters in which the mix of purchase and refinance loans were similar, the CoreLogic Housing Credit Index for each segment remained stable. Looking forward to 2018, with continuing economic and home price growth, we expect credit-risk metrics to rise modestly.”

The Index measures six attributes:

Credit Score: The average credit score for homebuyers increased 7 points year over the past year, rising from 739 to 746. The share of homebuyers with credit scores under 640 was 2 percent compared with 25 percent in 2001, less than one-tenth of the share in 2001.

Debt-to-Income: The average DTI for homebuyers in the third quarter was unchanged from a year ago at 36. The share of homebuyers with DTIs greater than or equal to 43 percent was 22 percent, down slightly from 24 percent in Q3 2016, but up from 18 percent in 2001.

Loan-to-Value: The LTV for homebuyers dropped by nearly 2 percentage points year over year, down from 86.4 percent in Q3 2016 to 84.9 percent in Q3 2017. The share of homebuyers with an LTV greater than or equal to 95 percent had increased by nearly one-third compared with 2001.

Investor Share: The investor share of home-purchase loans increased slightly from 4 percent in Q3 2016 to 4.4 percent in Q3 2017.

Condo/Co-op Share: The share of home-purchase loans secured by a condominium or co-op building increased from 10 percent in Q3 2016 to 11.5 percent in Q3 2017.

Documentation Type: Low- or no-documentation loans remained a small part of the mortgage market in Q3 2017, increasing from 1.5 percent to 2.2 percent of home-purchase loans during the past year.