Data powerhouse CoreLogic recently launched a new quarterly report featuring their Housing Credit Index (HCI) that measures variations in home mortgage credit risk attributes over time – including borrower credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV). According to their methodology, a rising HCI indicates that new single-family loans have more credit risk than during the prior period. A declining HCI means that new originations have less credit risk. Loans originating in Q3 2016 continued to exhibit low credit risk versus the previous quarter and Q3 2015. CoreLogic says, in terms of credit risk, Q3 2016 loans were among the highest-quality home loans that have originated since 2001.
“Mortgage originations over the past 15 years have exhibited a huge swing in credit tolerance, as shown in our Housing Credit Index. The index incorporates six risk attributes, including the three C’s of underwriting—credit, collateral, and capacity. Using 2001 originations as a base year, the HCI shows the significant loosening of credit running up to 2006. This was followed by a dramatic tightening of credit in response to the real estate crash and a decline in high-credit-risk applicants beginning with the Great Recession,” said Dr. Frank Nothaft, chief economist of CoreLogic.
Key takeaways:
- Credit Score: The average credit score for homebuyers increased 5 points year over year between Q3 2015 and Q3 2016, rising from 734 to 739. In Q3 2016, the share of homebuyers with credit scores under 640 had dropped by more than three-quarters compared with 2001.
- Debt-to-Income: The average DTI for homebuyers fell slightly between Q3 2015 and Q3 2016, falling from 35.7 percent to 35.4 percent. In Q3 2016, the share of homebuyers with DTIs greater than or equal to 43 percent was about the same compared with 2001.
- Loan-to-Value: The LTV for homebuyers decreased about 1 percentage point between Q3 2015 and Q3 2016, declining from 86.8 percent to 85.6 percent. In Q3 2016, the share of homebuyers with an LTV greater than or equal to 95 percent had increased by more than one-fourth compared with 2001.
Click here to read the full report on CoreLogic.com
