Current Credit Standards Tougher Than They Need to Be
Jann Swanson | Mortgage News Daily | Dec 31 2014 | link
What is an acceptable rate of mortgage delinquency? A CoreLogic economist is using current delinquency rates to argue that delinquencies will always be with us and that today’s underwriting standards are tougher than they need be.
Molly Boesel, a senior economist with the company says the serious delinquency rate (SDQ) in February 2010, near the height of the housing crisis, was 8.6 percent. Recent figures from CoreLogic show 1.6 million SDQ mortgages – those 90 days or more past due or in foreclosure, a rate of 4.2 percent.
The overall SDQ rate is on the decline and loans originated in the last four years and especially in contrast with their immediate pre-crisis predecessors are among the most pristine loans made in the last 15 years. Perhaps, she says, this indicates that credit standards have been tightened too far.
While the current SDQ rate is 4.2 percent not all origination years are contributing equally to that number. Originations made between 2004 and 2008 accounted for about 25 percent of active mortgages at the end of September but were responsible for about 77 percent of those with serious delinquencies. When those mortgages are eliminated the current SDQ rate drops to 2.1 percent.
Boesel also presents the mortgages by year of origination in a more graphic manner, vintage curves or default fingers which control for or remove time varying effects. The figure below shows the SDQ rates for loans originated between 1999 and 2013 at quarterly intervals over their first 5 years (although the new loans have not aged sufficiently for full analysis.) The data is displayed in three panels for ease of analysis.