Corelogic released its CoreLogic Housing Credit Index (HCI™) today showing that mortgages originated in Q4 2016 continued to exhibit low credit risk consistent and are among the highest-quality home loans originated since 2001.
The report had shown the average credit score for homebuyers went up 4 points year over year between Q4 2015 and Q4 2016, an increase from 733 to 737. The percentage of homebuyers Q4 2016 with credit scores under 640 was about one-tenth of those in 2001.
Homebuyers debt to income ratios were unchanged from Q4 2015, remaining at 36%.
The average loan to value went up slightly by less than 1 percentage point year over year between Q4 2015 and Q4 2016, rising from 86.7%t to 87.1%.
“Mortgage loans closed during the final three months of 2016 had characteristics that contribute to relatively low levels of default risk,” said Dr. Frank Nothaft, chief economist for CoreLogic. “While our index indicates somewhat less risk than both a quarter and a year earlier, this partly reflects the large refinance share of fourth-quarter originations. Refinance borrowers typically have a lower LTV and DTI than purchase borrowers.”
Nothaft concluded, “Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to harder-to-qualify borrowers. As this occurs, we should observe our index signaling a gradual increase in default risk. The evolution to a more purchase-dominated lending mix is also likely to increase fraud risk.”