Fewer cash-out refis and stronger credit lowered borrower risk
Stronger borrower characteristics, such as slightly higher FICO scores and lower loan-to-value ratios, have led to a reduction in mortgage default risk in the US.
As a result, the Milliman Mortgage Default Index (MMDI) for the fourth quarter of 2024 showed a decrease in the lifetime serious delinquency rate, falling to 2.12% from 2.18% in the third quarter of the year.
The decline in delinquency risk can be attributed to these more favorable borrower profiles, which have resulted in a lower overall risk of default.
Borrower risk decreased from 1.46% in Q3 to 1.39% in Q4, largely due to fewer cash-out refinance loans and better credit quality in purchase loans.
Jonathan Glowacki, a principal at Milliman and co-author of the MMDI, pointed out that while the drop in default risk is notable, mortgage performance must still be considered in the context of economic uncertainties.
“Even with the slight decline in default risk this quarter, it’s important to consider how evolving economic uncertainty can impact mortgage performance,” said Glowacki.
He stressed that both new and seasoned mortgages are susceptible to economic events, which may affect the market in unpredictable ways. Monitoring loan performance amid policy and regulatory changes will remain essential, according to Glowacki.
In the revision of Q3 2024 data, the MMDI value was restated from 2.12% to 2.18% to account for lower-than-expected home price appreciation.
The MMDI’s reliance on future home price forecasts means that changes in actual conditions can lead to adjustments in subsequent reports.
Founded in 1947, Milliman continues to apply its actuarial expertise and technological solutions to address challenges in sectors like insurance, healthcare, and financial services. With a global presence, the firm provides critical services to clients facing complex issues in a rapidly changing environment.
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