Mortgage Performance: Housing Credit Index Fourth Quarter 2016

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Fourth Quarter Originations Exhibit Low Credit Risk, Consistent with the Previous Quarter

  • CoreLogic’s Housing Credit Index (HCI) found mortgage loans originated during Q4 2016 continued to exhibit low credit risk compared with the previous quarter and one year earlier. In terms of credit risk, loans originated during Q4 2016 are among the highest-quality home loans originated since the Millennium.
  • The average credit score for homebuyers increased 4 points between Q4 2015 and Q4 2016, rising from 733 to 737.
  • Averages for both the loan-to-value ratio (LTV) and debt-to-income ratio (DTI) for homebuyers in Q4 2016 were similar to Q4 2015, remaining at about 87 percent for LTV and 36 percent for DTI.

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Loans originated in Q4 2016 have lower credit risk than loans 15 years ago, according to the latest CoreLogic Housing Credit Index (HCI).[1] Figure 1 shows the overall HCI from Q4 2001 through the end of Q4 2016. Higher index values indicate a higher level of credit risk for new originations, while lower index values indicate less credit risk. Compared with other loans made since mid-2009, the starting point of the current economic expansion, Q4 2016 loans are among the highest-quality home loans originated based on six important credit-risk attributes, including borrower credit score, LTV ratio, DTI ratio, documentation level, occupancy and property type. The decline in the HCI over the last five quarters has been primarily caused by lower credit-risk characteristics of new refinance loans (Figure 2). In Q4 2016, the HCI for purchase loans was slightly higher than during Q4 2015 and similar to the previous quarter; whereas, the HCI for refinance loans had declined each quarter. 

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Figure 3 plots the six indicators used to calculate the HCI for prime conforming conventional purchase-money loans. The blue hexagon represents an index of credit-risk attributes in the benchmark period (average of 2001 and 2002 set equal to 100 for each attribute) and the red polygon represents characteristics of loans made in Q4 2016 relative to the benchmark. Both 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 2001-2002 benchmark period. The share of new loans with an LTV of 95 percent or higher was slightly below the benchmark period, and the share of loans with a DTI at-or-above 43 percent was about 80 percent of the share during 2001 and 2002. In contrast, the non-owner occupied borrower share was about 50 percent higher than the benchmark period, and the condo/co-op share was slightly above the benchmark level.

Note: The share of loans made during 2001 and 2002 with the credit-risk attribute shown on the axis is set equal to 100.

[1] CoreLogic began issuing a quarterly Housing Credit Index report last quarter.

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