Consulting and actuarial firm Milliman [1] has released the findings of its fourth quarter 2022 Milliman Mortgage Default Index [2] (MMDI) finding that the latest monthly estimate of the lifetime default risk of the average U.S.-backed mortgages held steady from the third quarter of 2022 at 3.53%.
This number means that for mortgage loans that were originated in the fourth quarter, the expectations based on current market conditions is that 5.53% will miss more than six consecutive payments and enter delinquency (180 days or more late) over the lifetime of the loan.
According to Milliman, mortgage originations are at their lowest levels since 2019 along with refinance originations which are at their lowest levels since 2014. This is the fourth consecutive quarter that originations have decreased.
Breaking down risk into its individual components, borrower risk decreased from 1.61% to 1.57% in the fourth quarter. Loans during that quarter had better FICO credit scores and a better loan-to-values than reported in previous quarters. Economic risk inched up from 1.90% in 2022 Q3 to 1.96% in 2022 Q4 overall, though newer originations may face a steeper increase.
"The slight uptick in economic risk from 2022 Q3 to Q4 was offset by a decrease in borrower and underwriting risk, leading to the overall default risk remaining flat," said Jonathan Glowacki [3], a principal at Milliman and author of the MMDI. "We also expect to see a drop in future home price growth, which is contributing to a fairly sharp increase in economic risk for newer mortgage loans."
