A new index that measures the risk of default on new home-loan originations indicates that mortgage investors have seen risk fall.
On the $447.2 billion in mortgage originations during the second quarter of this year, the Default Risk Index came in at 85.3.
That put the probability of default on the residential loans that were originated during the three-month period at 0.99 percent.
The index was unveiled Friday by VantageScore Solutions LLC.
It is a measure of relative changes in risk level benchmarked against the third-quarter 2013 — the first period when data was compiled.
The DRI is derived using credit file data from TransUnion and tables that match values on the 300-850 VantageScore scale range with their corresponding probability of default values.
“Rather than use credit scores to directly gauge risk profile — a practice that is common but flawed — the DRI is derived using the probability of default tables that lie beneath each credit score,” VantageScore explains on its website. “In a single number, the Default Risk Index summarizes the risk profile of new originations in a way that is mathematically accurate and consistent over time.”
The latest reading indicates that risk has faded from the first quarter, when the 91.4 DRI indicated that the risk of default on the $319.5 billion in originations during the three-month period was 1.06 percent.
Risk has subsided even more substantially compared to the second-quarter 2015. During that period, the index was 121.6, indicating that the risk of default on the $419.3 billion in loans closed was 1.41 percent.
Based on VantageScore’s data, year-to-date 2016 mortgage originations through
June 30 totaled $0.7667 trillion. Last year’s production came to $1.4743 trillion, while originations amounted to just $1.0465 trillion in 2014.
