The MReport Webcast: Tuesday 7/29/2014

Loan risk in the agency mortgage market came down slightly in June, but analysts warn that risk levels are still unacceptably high. According to the American Enterprise Institute’s latest National Mortgage Risk Index, the share of home purchase loans at risk of going sour in the event of an economic downturn fell nearly half a percentage point last month to 11.4 percent. The group said the drop reflected declines in three of the four agencies tracked as well as a decline in the share of loans guaranteed by the Federal Housing Administration and Rural Housing Services.

According to the group, the risk value of loans securitized in Fannie and Freddie’s portfolios fell slightly to 5.8 percent, while the risk index for FHA slipped to 23.6—still nearly four times the maximum acceptable level of 6 percent, the AEI says. Meanwhile, the index for RHS hit a new series high, climbing to nearly 20 percent. Analysts for the institute say the biggest factor underlying the current high-risk environment is the abnormally high percentage of loans with debt to income ratios higher than 43 percent.

After three straight months of increases, pending home sales lost momentum in June, according to the National Association of Realtors (NAR). NAR’s Pending Home Sales Index, an indicator of future home sales based on contract signings, fell to 102.7 last month, down 1.1 percent from May. NAR chief economist Lawrence Yun said that while the housing market is stabilizing, ongoing challenges like supply shortages and wage stagnation are deterring buyer activity. Based on current measures, the group expects a minor uptick in sales during the latter half of the year, with a slowdown in home price appreciation and a pickup in inventory driving more activity.