AEI’s National Mortgage Risk Index for home purchase loans stayed at 11.43 percent in September, but is up nearly 1 point from the year prior. Meanwhile, the closely-watched S&P/Case Shiller composite index of 20 metropolitan areas gained fell short of expectations, gaining just 5.6 percent in August over last year, the slowest year-on-year increase since November 2012. A Reuters poll of economists had forecast a gain of 5.8 percent.
The October NMRI report marked the first time that VA purchase loans were risk-rated and included in the composite. VA loans in September had a risk rating of 11.24 percent, slightly below the composite rating.
A total of 232,000 loans were added in September, increasing the total number of loans included in AEI’s risk index to 4.52 million. The FHA’s NMRI in September was 23.99 percent, a slightly higher measurement than the average of 23.75 percent for the prior three months and up by 2.1 percentage points from September 2013.
This extremely high level of risk indicates that FHA loans would perform poorly in a serious stress event, fueling home price volatility, particularly in lower income and minority areas.