Purchase market growth led to increased risk in 3Q originations

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Underwriting purchase loans is inherently more precarious for mortgage lenders and that contributed to the year-over-year increase in risk in new originations during the third quarter, CoreLogic said.

Its Housing Credit Index for the period was 111, up 18 points from 93 in the third quarter of 2016. But this was a six-point decrease from the second quarter's 117.

It was not just a shift to a purchase market that heightened the risk factor; it was also that the purchase origination mix during the quarter included a slight increase in the percentage of loans made to investors.

The share of purchase loans secured by a condominium or co-operative increased to 11.5% in the third quarter from 10% one year prior.

Meanwhile, the refinance market shifted to borrowers that had lower credit scores and higher debt-to-income ratios. There was a rise in the share of Federal Housing Administration borrowers that refinanced into a conventional loan product.

CoreLogic considers an index value between 90 and 121 as the normal baseline risk level.

"The index shows higher risk attributes for both purchase and refinance loans, although the risk levels still remain similar to the early 2000s," said CoreLogic Chief Economist Frank Nothaft in a press release.

"When looking at the two most recent quarters in which the mix of purchase and refinance loans were similar, the CoreLogic Housing Credit Index for each segment remained stable. Looking forward to 2018, with continuing economic and home price growth, we expect credit-risk metrics to rise modestly."

Low- or no-documentation loans remained a very small part of the market but there was a slight increase in the share used to purchase a property, to 2.2% in the third quarter from 1.5% one year prior.

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Underwriting Purchase Refinance Risk management CoreLogic FHA