A new initiative of the American Enterprise Institute aims to mitigate the damage of housing's boom-and-bust cycles, utilizing a new Mortgage Risk Index developed by Fannie Mae's former chief credit officer, Edward Pinto, and his colleague Stephen Oliner, who spent more than 25 years with the Federal Reserve. Their index shows mortgage risk remains high today, and even more troublesome, it indicates risk levels are rising. In fact, they say less than half of the home purchase loans extended in recent months can be considered low risk, despite claims that today's credit standards are too tight.
Almost in step with Oliner and Pinto's warning that risk levels are rising—even amid claims that credit today is too tight—a new report from Ellie Mae shows credit standards ended 2013 at their lowest level all year. The company found that by December, criteria for first-lien mortgages had relaxed considerably, with the average FICO score at 727, loan-to-value ratios averaging 82 percent, and debt-to-income ratios at a yearly high of 39 percent.