The Smith Enterprise Risk Consortium SERC) at the University of Maryland’s Robert H. Smith School of Business has released results for Q2 2024 from its Mortgage Credit Risk Index (MCRI) and Mortgage Redtail Risk Index (MRRI).
According to the release, second-quarter-credit risk remained low (547 MCRI) for GSE-eligible mortgages (via Fannie Mae or Freddie Mac). This compared with a long-term average higher risk level (556) for the same index.
(MCRI measures 3-5-year default risk on GSE-eligible loans, while MRRI identifies loans with high-risk factors, aiding lenders, investors, and regulators in assessing mortgage credit risk and adverse selection.)
Smith Professor of the Practice and SERC Director Clifford Rossi added further context: “Though credit risk overall has deteriorated by about 30 score points since bottoming out in Q1 of 2021, it’s remained stable in recent quarters. This includes the risk year-after-year rising slightly (by 4 MCRI score points) due largely to changes in the composition of risk factors such as the number of borrowers and number of units, among others.” For context, every 40-point increase in MCRI doubles the odds of serious delinquency.
The percentage of loans considered to be the highest credit risk according to MRRI “remained at historically low levels, suggesting limited evidence of excessive concentrations of adverse risk attributes among borrowers,” Rossi added.
He also noted that the credit risk of loans sold by the largest GSE originators was relatively flat while credit risk improved slightly for other lenders in Q2 2024 relative to the previous quarter.
Rossi, with students in Smith’s Master of Quantitative Finance program, developed the indexes based on a set of proprietary algorithms leveraging machine learning technology and well-established mortgage credit risk analytics.
SERC is also offering institution-level analysis to originators and servicers based on their proprietary credit risk models. Write to SERC via risk@umd.edu or inquire online.
Full summaries of the indexes for Q1 2024 and Q2 2024 are published on the Smith Enterprise Risk Consortium homepage.
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