Default Risk Drops, Still Above Normal Levels

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This is kind of good news however the decline is not enough to make a big deal out of. As long as lenders do not pay enough attention to a prospective homeowners debt to income ratio the risk will be there. For a more detailed look at this subject – please read the article below.

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Loan risk in the agency mortgage market came down slightly in June, but analysts warn that risk levels are still unacceptably high.

According to the American Enterprise Institute’s (AEI) latest National Mortgage Risk Index, the share of home purchase loans at risk of going sour in the event of an economic downturn fell nearly half a percentage point last month to 11.44 percent.

AEI said the drop reflected declines for three of the four agencies tracked—Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA)—as well as a decline in the share of loans guaranteed by FHA and Rural Housing Services (RHS).

According to the group, the risk value of loans securitized in Fannie and Freddie’s portfolios fell slightly to 5.8 percent, while the risk index for FHA slipped to 23.6—still nearly four times the maximum acceptable level of 6 percent, AEI says.

Meanwhile, the index for RHS hit a new series high, climbing to 19.75 percent.

The biggest factor underlying the current high-risk environment is the abnormally high amount of debt consumers are paying relative to their incomes, say analysts at AEI’s International Center on Housing Risk.

To read the complete article – please use the link below.

Default Risk Drops

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