National Mortgage Risk Index Unchanged In October, But Up Year-Over-Year

AEI’s National Mortgage Risk Index for home purchase loans was little changed at 11.44 percent in October from the average of the prior three months. However, it has climbed almost 1 percentage point above the October 2013 level. A total of 220,000 loans were added in October, bringing the total number of loans included in the index to 4.78 million.

The gauge, which is the first-ever measure of how mortgage loans originated month-by-month would perform under severely stressed conditions, found loans to FTHBs (first time homebuyers) in October had a risk rating of 14.46 percent. That is roughly 3 points higher than the composite rating, an elevation of risk largely due to the concentration and lack of diversity of FHA loans.

The FHA’s NMRI in October stood at 24.19 percent, which represents an increase over the average for the prior three months and a clim of 2 percentage points year-over-year. This is an extremely high level of risk that suggests FHA loans would perform very poorly in a serious stress event. The resulting performance would fuel home price volatility, particularly devastating to lower-income and minority precincts.