Lenders originate riskier mortgages in the second quarter

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Mortgage lenders took on more risk in the second quarter as the share of loans to real estate investors and condominium owners increased, according to CoreLogic.

Its second-quarter Housing Credit Index increased 20 points year-over-year to 117. Even with the increase, it was still in the 90-to-120 range of the HCI from between 2001 and 2003, a period that's considered to be the normal baseline for credit risk.

The first-quarter 2017 HCI was 105. In this quarter, CoreLogic revised the index calculation to include a more comprehensive source of loan-level nonagency mortgage-backed securities data.

Investor and condominium/co-operative apartment loans have slightly higher-risk attributes than purchase loans for owner-occupied single-family homes, said CoreLogic Chief Economist Frank Nothaft in a press release.

"Despite the somewhat higher risk of new origination loans, purchase mortgage underwriting remains relatively clean with an average credit score of 745 and low delinquency risk."

The increases in the shares of investor and condominium purchase loans outweighed a nine-point year-over-year rise in the average credit score, the average debt-to-income ratio remaining at 36% and the average loan-to-value ratio falling to 85.5% from 87.4%.

The refinance loan HCI increased to 116 from 100 in the first quarter of this year and 93 from the second quarter of 2016 because of the slightly higher credit-risk characteristics of these loans as mortgage interest rates rose.

The purchase HCI was also at 116 for the second quarter, up from 111 in the first quarter and 97 one year ago as origination volume increased.

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