On Thursday, VantageScore Solutions, LLC [1] and TransUnion [2] released the VantageScore Default Risk Index (DRI) for Q4 2016. According to the DRI, when it comes to default risk, mortgages pose a lower threat than auto loans, student loans, and bankcards with the DRI for these four categories came in at 85.4 (mortgage) , 89.3 (auto), 90.0 (student loans), and 96.8 (bankcards) respectively. Despite the lower default risk compared to other debt categories, mortgage risk is up quarter-over-quarter.
The DRI uses credit file data to measure the relative changes in risk level assumed by lenders, benchmarked against Q3 2013 (when the index was first created). The DRI also measures quarter over quarter change and year-over-year change.
Quarter over quarter, mortgages saw a rise in default risk of 3.6 percent.
“New card and auto loans showed marginally more conservative risk profiles than the previous quarter, while mortgage loans showed the opposite trend. Student loans were once again the outlier, where the seasonal pattern continued to bring low volumes and higher risk loans in the fourth quarter when compared to the fourth quarters of years past,” the companies stated.
The risk of default in student loans, and the burden this type of debt has on Americans, impacts the housing market in a variety of ways. Recognizing that student loan debt is one of the top barriers to homeownership, Fannie Mae recently [3] released series of policies. to help borrowers with student loan debt buy a home, regardless of what their loan balance is.
“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution. These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” said Jonathan Lawless, VP of Customer Solutions at Fannie Mae.