Milliman: Mortgage Default Risk at 3.1% for Loans Acquired in Q3 2023

(Image courtesy of Milliman)

Milliman, Seattle, released its third-quarter Milliman Mortgage Default Index, which showed that quarter-over-quarter, mortgage default risk increased to 3.1% for loans acquired during the quarter from an adjusted 3.03% in the second quarter.

Milliman pointed to a projected decrease in home price appreciation as pushing the slight increase.

The economic risk for GSE loans also increased quarter-over-quarter, from 1.54% in the second quarter to 1.64% in the most recent quarter.

Borrower risk decreased from 1.51% in Q2 to 1.48% in Q3. Purchase loans made up the bulk of originations, at 89% of volume. Underwriting risk is low and is negative for purchase mortgages, Milliman said.

“Purchase volume has been decreasing year-over-year, but the quality of loans from a risk perspective has continued to be strong, keeping the default risk of new loan originations low,” said Jonathan Glowacki, a Principal at Milliman and co-author of the MMDI.

About 70% of refinance originations were cash-out.

The MMDI is a lifetime default rate estimate calculated at the loan level for a portfolio of single-family mortgages. For the purposes of the index, default is defined as a loan that is expected to become 180 days or more delinquent over the life of the loan.