Credit tightening increased in August, as the American Enterprise Institute’s (AEI) Composite National Mortgage Risk Index (NMRI) for purchase loans declined 0.3 percentage points year-over-year, the third month for this trend. This result has been led by Fannie and Freddie, but in August, FHA also declined 0.3 ppt year-over-year.
AEI’s NMRI uses the 2007-08 financial crisis as the stress event, covering nearly all loans originated since September 2012 that have a government guarantee to track risk in the mortgage market.
“Interestingly, credit tightened for first-time buyers but remained unchanged for repeat buyers, in a significant trend reversal,” AEI notes. “Credit has slightly tightened for the last three months. Time will tell whether this trend continues.”
Additionally, while new single-family home sales dropped month-over-month in October, first-time buyers still made up a large chunk of agency purchase loans. New single-family home sales were at a seasonally adjusted annual rate of 733,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development, and according to AEI Housing Market Indicators report, first-time buyers (FTB) accounted for 56.8% of agency purchase loans.
In its report, the AEI notes that though first-time buyers make up over half of all agency purchase loans, this number is down 1.1 percentage points year-over-year, with the largest declines coming from GSE and VA loans, indicating a pause in credit easing. First American has noted that the decline in the share of agency loans with a DTI greater than 43 has been most pronounced.
In its report, AEI tracked the progress on housing finance reform under Treasury’s September 2019 report pursuant to the Presidential Memo from 2019. According to AEI, the FHFA should evaluate its “support for cash-out refinancings, investor loans, vacation home loans, [and] higher principal balance loans.”
“The GSEs core mission should be to assist low and moderate income homebuyers in acquiring a primary residence,” AEI adds. “Starting today we will be tracking Housing Finance Reform from the GSEs’ perspective in regards to this core mission and progress being made on the steps outlined in the Treasury report.”