Increased Default Rates for GSE Backed Loans

The results show that during the second quarter and during the second quarter, the default risk of government-backed enterprise (GSE) loans increased from 0.28% to 1.48% for acquisitions made in the second quarter.

These data come from Milliman Mortgage Default Index (MMDI), which is an estimate of the lifetime default rate calculated at the loan level of a portfolio of single-family mortgages. Default is defined as a loan that is at least 180 days past due.

In comparison, the risk of default on loans held by Ginnie Mae also fell from 7.41% in the first quarter to 8.75% in the second quarter. The report notes that although purchase rates remained high throughout the quarter, a rise in interest rates reduced refinancing volume by 30%, which is generally considered less risky.

“We have seen the risk of default increase throughout the first half of 2021, mainly due to the increase in economic risk and borrower risk for new purchase loans,” says Jonathan glowacki, director at Milliman and author of MMDI. “And while the real estate market today faintly echoes that of 2007, before the global financial crisis, we see a number of important key factors that differentiate this increase in default risk.”

The Millman Index measures borrower, underwriting and economic risk. “Borrower risk measures the risk of loan default due to the borrower’s credit quality, initial equity position and debt-to-income ratio. Underwriting risk measures the risk of loan default due to characteristics of the mortgage product such as amortization type, occupancy status, and other factors. Economic risk measures the risk of loan default due to historical and forecast economic conditions, ”according to the publication.

On another side, ATTOM, with its subsidiary RealtyTrac, released its latest foreclosure market report for October, which found there were a total of 20,587 properties with foreclosure filings against them, up 5% from September and up 76% compared to a year ago. This increase marks the sixth consecutive year-over-year increase.

Click here to view the full MMDI report, which includes interactive data graphics.

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