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Borrower Credit Risk Continues to Improve

shutterstock_538301914CoreLogic released on Thursday its Q2 2017 Housing Credit Index (HCI) report, which measures the increase or decrease in credit risk for new home originations based on six factors, including: borrower credit score, investor-owned status, documentation level, debt-to-income ratio, condo/coop share, and loan-to-value ratio.

Year-over-year, the HCI is up 20 points to 117. As a point of reference, credit risk for the second quarter of 2017 is still within range of the time period the index was normalized—from 2001 to 2003.

“Mortgage risk for new originations increased modestly in the second quarter of 2017, but much of this rise was due to a small shift in the mix of loan types to more investor and condominium loans, which have slightly higher risk attributes,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Despite the somewhat higher risk of new origination loans, purchase mortgage underwriting remains relatively clean with an average credit score of 745 and low delinquency risk.”

Broken down, the individual attributes contributed to the overall HCI in the following ways:

Average credit score for homebuyers increased 9 points year-over-year, from 736 to 745. Homebuyers with lower-than-average credit scores (640) amounted for only 2 percent of total population compared to 25 percent in 2001.

The average debt-to-income ratio remained unchanged from Q2 2016 to Q2 2017 at 36, but homebuyers with a DTI ratio of 43 or higher was down slightly from 25 percent a year ago to 22 percent in 2017. Loan-to-value ratio dropped by nearly 2 percent to 85.5 percent to 87.4 percent. However, the amount of loans with an LTV rate of 95 percent or higher increased by almost half of its 2001 figure.

To see the full Housing Credit Index Report for Q2 2017, click here.

About Author: Joey Pizzolato

Joey Pizzolato is the Online Editor of DS News and MReport. He is a graduate of Spalding University, where he holds a holds an MFA in Writing as well as DePaul University, where he received a B.A. in English. His fiction and nonfiction have been published in a variety of print and online journals and magazines. To contact Pizzolato, email joseph.pizzolato@thefivestar.com.

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