Loan risk in the mortgage market slid down again in July but remained far above safe levels, according to the latest measure from the American Enterprise Institute (AEI).
The group reported that 11.41 percent of home purchase loans measured in its National Mortgage Risk Index (NMRI) would be at serious risk under "severely stressed" economic conditions. The latest measure includes 196,000 more loans added to the index, bringing the total number of loans included to 3.66 million.
While that figure is down nearly a quarter of a percentage point from June, it's still close to double the 6 percent threshold AEI considers to be conducive to a stable market.
AEI reported that loans insured by the Federal Housing Administration (FHA) remain the riskiest at an index of 23.8 percent.
Meanwhile, the component index for Fannie Mae and Freddie Mac stood at 6 percent.
Overall, AEI maintains that FHA and the GSEs aren't doing enough to offset the risk they're taking from loans with debt-to-income (DTI) ratios above 43 percent, which is the normal cutoff for a loan to be considered a qualified mortgage (QM).
Because GSE and FHA-insured loans are exempt from the DTI threshold for the time being, the group says there "continues to be little discernible volume from the QM regulations" on those high DTI mortgages.
Furthermore, AEI says efforts from policymakers to expand credit access could create problems in the future.
"Subprime lending by FHA issuers continues to grow in response to government calls for expanded use of the FHA credit box," the group said. "This risks fueling home price volatility, particularly in lower income and minority areas."