An early look at April purchase lending suggests mortgage risk has turned up sharply as the Federal Housing Administration (FHA) takes more of the market.
The American Enterprise Institute (AEI) put out on Monday a “flash release” of its National Mortgage Risk Index (NMRI), a measure of the likelihood of purchase loan defaults under stressful economic conditions. The full index, which features a more complete look at data, is scheduled for release May 27.
According to the group, the index climbed last month to 11.89, indicating nearly 12 percent of loans would be at risk of default in the event of another downturn. That figure is up from a reading of 11.5 percent in March and represents a series high for the index.
AEI’s Center on Housing Risk, which produces the monthly index, said the spike was “due to FHA, which had higher market share and increasing loan level risk.” According to the researchers, FHA’s home purchase volume last month came to an estimated 41,756, increasing 36 percent over March.
At the same time, Fannie Mae and Freddie Mac together had home purchase volume of 101,050 in April, an increase of just 24 percent.
Overall, AEI reports purchase volumes were up 27 percent month-to-month, “the result of the spring buying season ramping up.”
Breaking down risk across each segment, the April NMRI for FHA loans was 25.12 percent, up from 24.77 percent in March and a new high for that category. Meanwhile, the index for GSE loans fell slightly to 5.93 percent, dropping below the 6 percent maximum AEI says “is indicative of conditions conducive to a stable national market.”
AEI’s preliminary index data comes only days after the Mortgage Bankers Association’s (MBA) most recent look at credit availability, which reportedly tightened in April following nearly half a year of loosening. While a growing number of lenders have say they have followed tighter lending practices as a result of this year’s Qualified Mortgage rules, AEI maintains the guidelines have actually had little effect, especially as FHA and GSE loans remain exempt from rules establishing a 43 percent maximum debt-to-income threshold.