Loans Originated in the First Quarter Exhibit Slightly Higher Credit Risk Compared to the Previous Year
- CoreLogic’s Housing Credit Index (HCI) found mortgage loans originated during Q1 2017 exhibit slightly higher credit risk compared with the previous year but remained similar to early 2000s.
- The average credit score for homebuyers increased 7 points between Q1 2016 and Q1 2017, rising from 734 to 741.
- The average loan-to-value ratio (LTV) for homebuyers in Q1 2017 slightly fell from Q1 2016, from 87.6 percent to 85.9 percent. However, the average debt-to-income ratio (DTI) for homebuyers in Q1 2017 was similar to Q1 2016, holding steady at 36 percent.
Loans originated in Q1 2017 have slightly higher credit risk than loans originated last year. However, the credit risk is about the same compared to early 2000s, according to the latest CoreLogic Housing Credit Index (HCI). Figure 1 shows the overall HCI, for both home-purchase and refinance loans, from Q1 2001 through the end of Q1 2017. Higher index values indicate a higher level of credit risk for new originations, while lower index values indicate less credit risk. Compared with loans made during 2001-2003, loans in Q1 2017 have a similar risk quality based on six important credit-risk attributes, including borrower credit score, LTV ratio, DTI ratio, documentation level, investor-owned status and condo/co-op share. Some of the credit-risk attributes of loans in Q1 2017, such as LTV and DTI, look more risky than the loans in 2001-2003. However, other credit-risk attributes such as documentation level and credit score look less risky.
The slight increase in the overall HCI from the first quarter of 2016 to the first quarter of 2017 has been primarily caused by increased riskiness of home-purchase loan attributes and the larger share of home-purchase loans in the first quarter of 2017 (Figure 2). Shift to a higher percentage of home-purchase loans increased overall credit-risk metrics, as home-purchase loans have higher risk attributes than refinance loans. Investor activity and condo/co-op lending had increased in Q1 2017 from Q1 2016, making the loans look more risky in Q1 2017, despite the lower-risk signals from the credit score, DTI and LTV attributes. In Q1 2017, the HCI for both home-purchase and refinance loans remained in the same range as early 2000s.
Figure 3 plots the six indicators used to calculate the HCI for prime conforming conventional home-purchase loans. The blue hexagon represents an index of credit-risk attributes in the benchmark period (average of 2001-2003 set equal to 100 for each attribute) and the red polygon represents characteristics of loans made in Q1 2017 relative to the benchmark. The share of borrowers with a credit score of less than 640 and the low- and no-doc share were down significantly compared to the 2001-2003 benchmark period. In contrast, the share of new loans with an LTV of 95 percent or higher was slightly above the benchmark period, and the share of loans with a DTI at-or-above 43 percent was about 31 percent higher than the benchmark period. Similarly, the investor-owned share was 27 percent higher than the benchmark period, and the condo/co-op share was 34 percent higher the benchmark level.
Note: The share of loans made during 2001-2003 with the credit-risk attribute shown on the axis is set equal to 100.
 CoreLogic began issuing a quarterly Housing Credit Index report on Q3 2016. However, the methodology was revised in Q1 2017 to include a more comprehensive source of loan-level, non-agency, mortgage-backed securities data. (Please see the HCI Q1 2017 report for details.)
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