National And State Mortgage Risk Indices Unchanged In August

The National Mortgage Risk Index for home purchase was little changed at 11.28 percent in August from July (revised), according to AEI’s International Center on Housing Risk. Even though home purchase volume hit its highest level since October of 2013, it was still shy 8 percent on the year-over-year level.

Combined, the FHA and Rural Housing Service represented a substantial 31 percent of the NMRI purchase loans in August, which is slightly under the share levels one year-ago.

In August, 210,000 loans were added to the National Mortgage Risk Index. Now, the total number of loans included in the index increased to 3.88 million.

“There continues to be little discernible volume impact from the QM regulations on the share of loans with debt-to-income ratios (DTIs) greater than 43 percent,” AEI’s email to PPD stated. “Subprime lending by FHA issuers continues at a strong pace in response to government calls for expanded use of the FHA credit box.”

Earlier this year, PPD also reported on two policy statements made by Mel Watt, director of the Federal Housing Finance Agency (FHFA), and Shaun Donovan, secretary of HUD, which backed-off tight restrictions that required sound lending practices. The policies represent a return to a pre-crisis mindset and are repeating the mistakes of the subprime mortgage crisis.

According a report released Monday by the Federal Financial Institutions Examinations Council, the number of mortgage originations declined 11 percent last year to 8.7 million from 9.8 million in 2012. The decline was caused primarily by a drop in refinance mortgages for one- to four-family properties, which fell by over 1.5 million or 23 percent, according to the report.

The Federal Financial Institutions Examinations Council compiles data annually on mortgage transactions from nearly 7,200 lenders including banks, savings associations, credit unions and mortgage companies.

Experts say the decline was likely due to mortgage interest rates increasing significantly during 2013, which prompted the government to once again intervene and artificially prop up the weaker-than-reported housing market. Last year signaled the end of a three-year boom in refinances, in which mortgage borrowers rushed to lock in the lowest mortgage rates in nearly 60 years. Interest rates, overall, which obviously affect mortgage rates, were lowered in the wake of the 2008 financial crisis in an effort to spur lending and to kick-start economic activity.

The risks associated with government-centered lending practices fuels home price volatility and disproportionately hurts lower-income and minority areas.

AEI’s National and State Mortgage Risk Indices provide the first-ever measure of how mortgage loans originated month-by-month would perform under severely stressed conditions. PPD is slated to attend a conference call with AEI’s International Center on Housing Risk co-directors Edward Pinto, a resident fellow at AEI and a former executive vice president and chief credit officer for Fannie Mae, and Stephen Oliner, a senior fellow at UCLA’s Ziman Center for Real Estate.

The two will analyze the riskiness of single-family mortgage originations based on data through August 2014, at the end of the month. PPD will release the findings shortly after, which should coincide with more NRA data.