Real Estate News

Mortgage risk a mixed bag in changing market

Published: 16 Oct 2017

There are a number of different ways to define mortgage risk, but perhaps the most common is simply defined as the likelihood that will homeowners fall behind on their home loan payments and slide into delinquency and default. Over the past several years, this form of mortgage risk has fallen sharply thanks to the improving economy, but other types still linger - and experts say the latter could become bigger issues for the market as a whole going forward.

The total number of properties nationwide that deal with a foreclosure filing - whether that was a default notice, auction or repossession - in the third quarter of 2017 totaled less than 192,000, according to the latest statistics from ATTOM Data Solutions. That number was a decline of 13 percent from the previous quarter, as well as 35 percent on an annual basis, dropping total foreclosure activity nationwide to the lowest level observed since the second quarter of 2006.

As a consequence of these changes, total activity reached a level 31 percent below the average number of filings seen since start of the recession, and nearly 3 in every 5 major metro areas nationwide had activity below the levels seen prior to the recession the report said. Moreover, foreclosure starts continue to decline nationwide, which likely portends future declines.

Mortgage risk is going through some ups and downs these days.Mortgage risk is going through some ups and downs these days.

Risk on the rise
For the second quarter of 2017, the Housing Credit Index from CoreLogic showed that a different type of mortgage risk is on the rise across the U.S. - albeit marginally - as new home loans are now more likely to default in the future. Moreover, risk remains well within what CoreLogic considers a healthy range for the overall market.

This uptick came in part because investors rather than buyers who intend to live in the homes they buy are taking on more mortgages.

"Mortgage risk for new originations increased modestly in the second quarter of 2017, but much of this rise was due to a small shift in the mix of loan types to more investor and condominium loans, which have slightly higher risk attributes," said Dr. Frank Nothaft, chief economist for CoreLogic.

As a consequence, the likelihood of upticks in delinquency and default for new mortgages remains quite low, especially in comparison with the norms seen during the recession.

Another rising indicator
Meanwhile, mortgage fraud is also on the rise, according to other data from CoreLogic. Furthermore, in the second quarter - the most recent period for which data is available - about 0.82 percent of mortgage applications filed nationwide carried at least some indication of fraud, up from 0.7 percent seen in the same quarter a year earlier. This change came as would-be borrowers were caught falsifying data about their occupancy and incomes in particular, as well as transaction data.

Finally, there is the type of mortgage risk that title insurance is designed to protect against: When issues of homeownership arise during or even years after a transaction, such as disputes about ownership of the property. Having the right title insurance can significantly insulate all parties against the legal and financial issues associated with this type of risk.