National and State Mortgage Risk Indices

Notwithstanding statements to the contrary by many public officials, credit conditions today are not tight when compared to the early-1990s (today is generally much looser) or early-2000s (some tighter, some not).  As a result, recent announcements by public officials to spur looser lending are cause for great concern.

Below is a slide which chronicles credit conditions from 1990 to the present.

credit conditions

Chart courtesy of AEI. For a larger view click on the chart.

The characteristics of these loans will likely be 30-year GSE or FHA loans with a down payment of 3-4%, a FICO score of 600-660, and a DTI of 38-50%.  These loans have an NMRI score of 30-40%–meaning under a stress scenario like that experienced in 2007, one in three of these loans will fail.  For many more of these buyers, owning a home will fail to build wealth.  Sadly, a large percentage would likely have been better off renting and creating wealth through a 401 k (if available).

First time homebuyers deserve better. We must abandon the high leverage policies that have consistently failed to accomplish the goal of reliable wealth building for low- and middle-income buyers.

Here is the link to the briefing slides for today’s NMRI briefing call–  October 2014 Mortgage Risk Index briefing presentation- Sept. 2014 data