CoreLogic’s Housing Credit Index (HCI) indicates mortgage loans originated during the fourth quarter of 2016 exhibited low credit risk and are among the highest-quality loans originated since 2001, according to the company’s press release.
“Mortgage loans closed during the final three months of 2016 had characteristics that contribute to relatively low levels of default risk,” CoreLogic Chief Economist Frank Nothaft said in the release.
“While our index indicates somewhat less risk than both a quarter and a year earlier, this partly reflects the large refinance share of fourth-quarter originations,” Nothaft said. “Refinance borrowers typically have a lower LTV and DTI than purchase borrowers.”
The HCI measures borrower credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV). For loans originating in the fourth quarter, the HCI found the average credit score for homebuyers increased 4 points year-over-year; their average DTI (36 percent) was similar to a year ago; and LTV for homebuyers increased by less than 1 percentage point year-over-year.
Going forward in 2017, Nothaft said rising mortgage rates will probably make loans more risky and fraud more prevalent.
“Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to harder-to-qualify borrowers,” he said. “As this occurs, we should observe our index signaling a gradual increase in default risk. The evolution to a more purchase-dominated lending mix is also likely to increase fraud risk.”