Credit risk overall for government-sponsored enterprise (GSE)-eligible mortgages remains relatively low and stable, according to Q3 2024 results from the Smith Enterprise Risk Consortium’s (SERC) Mortgage Credit Risk Index (MCRI) and Mortgage Redtail Risk Index (MRRI)—produced and tracked by SERC director and professor Clifford Rossi and Master of Quantitative Finance students at the University of Maryland’s Robert H. Smith School of Business.
The 549 MCRI score (on a 300-900 scale) represents a 30 index-point deterioration from the first quarter of 2021, when mortgage risk was at its lowest. (A 40-point increase in MCRI doubles the odds of serious delinquency.)
The risk level has increased by 7.5 points year-over-year since 2021, largely due to factors such as the number of borrowers and fixed-rate loan terms, says Rossi, who developed the indexes with his students using a set of proprietary algorithms that leverage machine learning technology and well-established mortgage credit risk analytics.
They give more highlights from the recent results:
- The percentage of loans considered to be the highest credit risk remained at historically low levels, suggesting limited evidence of excessive concentrations of adverse risk attributes among borrowers.
- Credit risk of loans sold by the largest GSE originators—Fannie Mae and Freddie Mac—increased slightly. In contrast, credit risk remained flat for other lenders in Q3 2024 relative to the previous quarter.
- Similar results for the credit risk of loans serviced by the largest GSE mortgage servicers relative to other servicers were observed in Q3 2024.
Designed for originators, servicers, credit investors, PMI companies, and regulators, SERC’s MCRI evaluates underwriting conditions and economic performance of loans from the past 3-5 years. It measures relative credit risk on a quarter-over-quarter basis, including decisions related to staffing, quality control, repurchase activities and process improvements.
The MRRI tracks the degree of risk layering or potential adverse selection of loans sold to GSEs. And as the MCRI assesses the overall credit risk of newly originated loans, the MRRI estimates changes in the share of new originations that exhibit the highest combination of risk factors.
More key takeaways in the latest report include:
- Quarter-over-quarter changes in credit risk were negligible, driven largely by other risk factors such as a decrease in the number of borrowers per loan and slight shifts toward 30-year fixed-rate loan term products versus less risky 15- and 20-year mortgages.
- Large servicer credit risk profile increased slightly between Q1 2024 and Q3 2024, while it was flat for other servicers. The credit risk of loans serviced by larger servicers remains elevated compared to smaller servicers.
- Loans with combinations of riskiest attributes as a percentage of Q3 2024 originations remained at historically low levels compared to the Q1 2000 benchmark (=100), indicating that concentrations of adverse risk attributes remain at relatively muted levels.
Full summaries of the indexes for Q1 2024 and Q2 2024 are also published on the Smith Enterprise Risk Consortium homepage.
SERC also offers institution-level analysis to originators and servicers based on their proprietary credit risk models. Write to SERC via risk@umd.edu or inquire online.
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About the University of Maryland's Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.