Q4 Loans in 2016 Among Highest Quality Since 2001
According to CoreLogic’s recently released Housing Credit Index (HCI,) the loans originated in the fourth quarter of 2016 are among the highest quality mortgages originated since 2001, (in terms of overall credit risk.) The HCI Index compares loans with those originated in previous quarters based on borrower credit scores, debt-to-income and loan-to-value ratios. CoreLogic found that the average credit score for money purchase loans rose 4 points from 733 in the fourth quarter of 2015 to 737 in the fourth quarter of 2016.
Frank Nothaft, chief economist for CoreLogic, stated “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 loan-to-value, debt-to-equity ratio and debt-to-income ratios than purchase borrowers.” Nothaft also noted that with interest rates expected to rise further this year, “Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to hard-to-qualify borrowers. As this occurs, we should observe our index signaling a gradual increase in default risk.”
In other housing news, the number of permits issued to builders on a national basis fell 6.2% from January to February, according to the seasonally adjusted numbers in the latest new residential construction report jointly released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. The biggest decrease was in permits to construct multi-family buildings with five or more units, where builders received 26.9% fewer permits in February than January and 15.7% fewer than they did in the same month a year earlier. On the positive side, permits for single-family homes rose 3.1% in February over the previous month, and 13.5% over the same month in the previous year, according to the report.
Finally, the share of homes sold for cash fell to the lowest level in nearly a decade in 2016. According to a recent report from CoreLogic, 32.1% of all home sales last year closed with a mortgage. This was a decrease of 2.2% from 2015, (the previous low point for cash sales was in 2007 at 27% of total home sales.) CoreLogic also noted that distressed home sales accounted for only 8.9% of all sales for 2016, the lowest share since 2007.