May 10, 2019
Are Mortgage Risks on the Up-Swing?
According to the recent American Enterprises Institute Housing Market Indicators Report, released on the first of April (not as a joke on fools) and concentrating on December 2018’s numbers, mortgage risk is on the rise. This is a continuation of a trend (see October’s HMI Report, for example) that began in mid-2013. The composite Purchase National Mortgage Risk Index rose to its highest point ever since tracking began in December, a hike of 0.5 percentage points year-over-year from December 2017.
American Enterprises Institute places the majority of the causation for this trend on the head of the Federal Housing Authority (FHA), whose increasing risk has been the leader in risk accumulation. While in March the FHA did make some changes in its Total Scorecard numbers in order to attempt a correction of this situation, it is far too soon to tell if those changes will have any impact on the rise in mortgage risk.
This is due in part to a loosening of the qualifications required to underwrite a loan, ostensibly in an attempt to increase the affordability of housing—and in direct competition for loan numbers with Fannie Mae, which has been taking similar measures, though to a lesser extent. The claim American Enterprises Institute makes is that FHA has been offering increasingly risky loans to offset the already-risky loans being poached from its numbers by Fannie Mae. While Fannie Mae’s loan risk numbers have been going up, in some cases to a Mortgage Risk Index score of 24, FHA’s have jumped markedly to much higher risk loans, at times exceeding a risk of greater than 32.
Meanwhile, housing prices in general have begun to see an uptick—particularly on the lower end of the market, precisely where the sorts of high-risk loans we have been discussing here are designed to serve. Higher risk and higher loans. Not the best combination.
If you’re shopping around for a home in Florida, Rhode Island or Massachusetts, and plan to get a mortgage from either a large institution or a smaller institution, it’s likely that Ellie Mae will be involved in the mortgage process. But a homebuyer must look out for their own ownership interests. Contact us to see how we can help ensure proper transfer of title and provide title insurance. Topouzis & Associates, P.C., is backed by multiple underwriters, staffed by residential real estate specialists and ready to help you avoid costly delays and streamline your residential transactions.