The first mortgage default rate increased four basis points to 0.73% in September 2019, according to the latest S&P/Experian Consumer Credit Default Indices. The indices represent a measure of changes in consumer credit defaults and show that the composite rate rose one basis point to 0.93%.
Outside of mortgage defaults, the bank card default rate fell 41 basis points to 3.32%, and the auto loan default rate was up seven basis points to 1.05%.
Three of the five major metropolitan statistical areas (MSA) showed higher default rates compared to last month. Chicago showed the largest increase, up 14 basis points to 1.19%. The default rates for New York and Miami each rose two basis points, to 0.96% and 1.30% respectively. The rate for Dallas was unchanged at 0.93%. Los Angeles was the only MSA with a decrease in default rates, down five basis points to 0.72%.
In an effort to further reduce future defaults on FHA-insured mortgages, the Federal Housing Administration (FHA) has signaled that it may tighten credit, noting that the debt-to-income (DTI) ratio for FHA-insured loans has been consistently increasing for six years. In a new report, Urban Institute examined how important DTI ratios in predicting a borrower’s ability to make on-time mortgage payments, and how debt burden impacts ability to repay FHA mortgages.
According to Urban, DTI ratios are much less significant predictors of loan performance than FICO scores and that many high-DTI loans have strong FICO scores. Additionally, Urban’s analysis found that higher-DTI loans do not always have higher serious delinquency rates, and 5.6% of loans with DTI ratios ranging from 0 to 35% have been seriously delinquent at 60 months of age, compared with 7.6% of loans with DTI ratios of 35–45. But for loans with DTI ratios greater than 50, the D90+ rate at 60 months is 6.9%, lower than those with DTI ratios of 35–45.