For the first time since 2021, risks align
The default risk for US-backed mortgages in the third quarter (Q3) of 2024 climbed to 2.12%, marking an increase from 2.03% in Q2 2024, according to the latest Milliman Mortgage Default Index (MMDI). The uptick was attributed to a projected slowdown in home price appreciation, according to the global consulting and actuarial firm.
The analysis also revealed a milestone: refinance loans now share the same default risk rate as purchase loans—a development not seen since 2021. Jonathan Glowacki, principal at Milliman and co-author of the MMDI, attributed this shift to an equal balance in the volume of rate/term refinance loans and higher-risk cash-out refinance loans, which averaged out to align with the risk rate of purchase loans.
“For the first time in nearly three years, default risk on refinance loans is equal to or less than the default risk for purchase loans,” Glowacki said. “With the volume of relatively lower-risk rate/term refinance and higher-risk cash-out refinance loans equaling each other, the default risk for these loans ended up averaging out to a similar default risk rate as purchase loan originations.”
In Q3 2024, approximately 82% of mortgage originations consisted of purchase loans, while refinance loans, divided equally between rate/term and cash-out refinances, accounted for $32 billion in total. Borrower risk, which measures the likelihood of a borrower falling behind on payments due to factors such as credit scores and debt-to-income ratios, remained stable, decreasing marginally from 1.47% to 1.46%.
The Milliman report also highlighted that its MMDI values for Q2 2024 have been revised. The firm, founded in 1947, operates globally with a focus on independent consulting and advanced analytics.
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