CoreLogic US Housing Credit Index shows a decrease in mortgage credit risk
CoreLogic, a leading global property information, analytics and data-enabled solutions provider, today released its Q4 2016 CoreLogic Housing Credit Index that measures variations in home mortgage credit risk attributes over time, including borrower credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV). A rising HCI indicates that new single-family loans have more credit risk than during the prior period, while a declining HCI means that new originations have less credit risk.
The current HCI shows mortgage loans originated in Q4 2016 continued to exhibit low credit risk consistent with the previous quarter and tighter than in Q4 2015. In terms of credit risk, Q4 2016 loans are among the highest-quality home loans originated since 2001.
“Mortgage loans closed during the final three months of 2016 had characteristics that contribute to relatively low levels of default risk,” said Dr. Frank Nothaft, chief economist for CoreLogic. “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. Refinance borrowers typically have a lower LTV and DTI than purchase borrowers.”
Nothaft observed that mortgage rates have moved higher since November and are anticipated to rise even further during 2017. “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. 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.”
HCI Highlights as of Q4 2016 (Figures 2-3):
- Credit Score: The average credit score for homebuyers increased 4 points year over year between Q4 2015 and Q4 2016, rising from 733 to 737. In Q4 2016, the share of homebuyers with credit scores under 640 was about one-tenth of those in 2001.
- Debt-to-Income: The average DTI for homebuyers in Q4 2016 was similar to Q4 2015, remaining at 36 percent. In Q4 2016, the share of homebuyers with DTIs greater than or equal to 43 percent had increased slightly compared with 2001.
- Loan-to-Value: The LTV for homebuyers increased by less than 1 percentage point year over year between Q4 2015 and Q4 2016, rising from 86.7 percent to 87.1 percent. In Q4 2016, the share of homebuyers with an LTV greater than or equal to 95 percent had increased by more than one-fourth compared with 2001.