To the extent actual or baseline forecasts diverge from the current forecast, future publications of the MMDI will change accordingly. The MMDI reflects a baseline forecast of future home prices. While the current level of robust home price growth is certainly a function of the pandemic and supply/demand imbalances, it is difficult to estimate how home prices may react post-pandemic. Therefore, comparable Q3 data is not available. As previously noted, this publication of the MMDI uses the most recent data available to provide timely information on credit trends. This is because actual home price movements were more favorable than previously forecasted. However, in the 2021 Q4 release economic risk decreased quarter over quarter (i.e., the lines in the chart for the 2021 Q4 release are lower relative to the 2021 Q2 release). We notice from the chart that economic risk has remained steady for older originations, while economic risk for newer originations has sharply increased, as we anticipate slower home price growth in the future. For more recent cohorts, we anticipate slower home price growth (or negative growth for some local geographies) after the housing supply returns post-pandemic, which contributes to increases in economic risk for recent origination years.įigure 2 shows the economic risk component of the MMDI for GSE mortgages stated as of 2021 Q Q4. This results in reduced default risk for older cohorts. Actual home price appreciation has been robust from 2014 through 2021, which has resulted in embedded appreciation for older originations. ECONOMIC RISK RESULTS: 2021 Q4Įconomic risk is measured by looking at historical and forecasted home prices. Underwriting risk is not a large contributor to the MMDI given the tight underwriting requirements for conventional mortgages. Underwriting risk after the global financial crisis remains low and is negative for purchase mortgages, which were generally full-documentation, fully amortizing loans. Underwriting risk represents additional risk adjustments for property and loan characteristics such as occupancy status, amortization type, documentation types, loan term, and others.
Refinance loans typically have lower borrower risk as it is typical for the borrowers to have higher credit scores and lower loan-to-value ratios. Refinance loans made up about 58% of the total loan pool in Q3, compared to 61% in Q4. BORROWER RISK RESULTS: 2021 Q4įor GSE loans, borrower risk decreased from 1.33% in 2021 Q3, to 1.25% in 2021 Q4. Economic risk measures the risk of the loan defaulting due to historical and forecasted economic conditions. Underwriting risk measures the risk of the loan defaulting due to mortgage product features such as amortization type, occupancy status, and other factors. Borrower risk measures the risk of the loan defaulting due to borrower credit quality, initial equity position, and debt-to-income ratio.
There are three components of the MMDI: borrower risk, underwriting risk, and economic risk. The value of the MMDI increased for Freddie and Fannie acquisitions over 2021 Q4. To explore the MMDI data on a more granular level, including loan origination and type, click here. We are making this change because Ginnie Mae data is released much later relative to the data published by Freddie and Fannie, and focusing on GSE originations will provide more timely insights into mortgage credit risk trends. Note on Ginnie Mae loansīeginning with this release, the MMDI publication will primarily focus on Freddie and Fannie (GSE) loan originations, and no longer include commentary on Ginnie Mae loans-although the index will continue to include this data.
#Mortgage defaults 2021 driver#
For both purchase and refinance, the primary driver of this increased default risk is an expected slowdown of home price growth over the next several years. Figure 1 provides the quarter-end index results for these loans, segmented by purchase and refinance. The index value of the MMDI was 1.98% for loans originating in 2021 Q4 compared to 1.65% for 2021 Q3 originations. For refinance mortgage originations, rising interest rates have reduced the incentive for borrowers to refinance, resulting in lower refinance volume. Purchase mortgage originations are typically lower during Q4, so this decrease is not unexpected.
Mortgage originations declined during the fourth quarter (Q4) of 2021 compared to the third quarter (Q3) of 2021.
#Mortgage defaults 2021 mac#
1 The results of the MMDI reflect the most recent data acquisition available from Freddie Mac and Fannie Mae, with measurement dates starting from January 1, 2014. For the purposes of this index, default is defined as a loan that is expected to become 180 days or more delinquent over the life of the loan. The Milliman Mortgage Default Index (MMDI) is a lifetime default rate estimate calculated at the loan level for a portfolio of single-family mortgages.
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