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Tag Archives: AEI’s International Center on Housing Risk

Government on the Hook for Larger Pool of Loans

The news for the housing industry has not been positive in the last few days from the reports of low inventory, rising prices, stagnant wage growth, and disappointing new home sales. Default risk on Agency mortgage loans is increasing as well.

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Agency Purchase Loans Increase Substantially; Risk Index Hits Series High

May's NMRI stood at 12.33 percent, which was an increase of 0.4 percentage points from the prior three-month average and a jump of 0.7 percentage points from May 2014, according to AEI. The composite risk index reached a series high, as did the index for Veterans Affairs-backed loans, while the share of high-risk loans backed by the Federal Housing Administration (FHA) increased.

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Agency First-Time Buyer Risk Index Reaches Series High

The risk profile for first-time buyers suggests that access to mortgage credit is not as tight as some have suggested, according to AEI. In May, first-time buyers with an agency mortgage averaged a downpayment of about 3 percent, or $7,000, and a median FICO score of 706, which is below the median score of 713 for all mortgage buyers in the United States. The median FICO score for first-time buyers with FHA-backed loans drops to 673.

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Agency First-Time Buyer Index Shows Mortgage Loans Are Becoming Riskier

Risk layering is largely responsible for the increase in risk on mortgage loans taken out by first-time buyers, according to AEI. Seventy percent of first-time mortgage buyers in April 2015 had a combined LTV ratio of 95 percent or more and 97 percent of them had a 30-year term. Without substantial home price appreciation, the low down payment and slow amortization makes it likely that these first-time buyers will have very little equity in their homes for many years.

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Shift from Bank to Nonbank Lending Causing Rise in Default Risk for Agency-Backed Loans

The across-the-board increases in default risk can be attributed to the risk associated with nonbank lending, which is substantially higher than that of big bank loans, according to AEI. The composite NRMI was reported to be 11.93 percent in February, a slight increase of 0.1 percentage points from the prior three-month average and a jump of 0.8 percentage points year-over-year. The composite index just hit a series high of 11.94 percent in January.

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Default Risk Index For Agency Purchase Loans Hits Series High

The default risk for Agency mortgage loan originations rose in January, marking the fifth straight month-over-month increase, according to the composite National Mortgage Risk Index (NMRI) released by AEI's International Center on Housing Risk. In January, the NMRI for Agency purchase loans increased to a series high of 11.94 percent. That number represented an increase of 0.4 percentage points from the October through December average and a jump of 0.8 percentage points from January 2014.

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