Mortgage Risk Rate Continues to Increase in Q2 2022

Staff Report

Friday, September 2nd, 2022

Milliman, Inc., a premier global consulting and actuarial firm, today announced the second quarter (Q2) 2022 results of the Milliman Mortgage Default Index (MMDI), which shows the latest monthly estimate of the lifetime default risk of U.S.-backed mortgages. 

The default risk for government-sponsored enterprise (GSE) acquisitions (purchased and refinanced loans backed by Freddie Mac and Fannie Mae) increased from a rate of 2.28% for mortgage loans originating in Q1 to 2.78% for loans originating in Q2 2022. This means that for mortgage loans originating in Q2, the expectation is that 2.78% will become delinquent (180 days or more) over their lifetimes.

 

The volume of refinance mortgages continued to decline in Q2 2022 compared to Q1, likely the result of increasing interest rates. Mortgage refinance volume has dropped steadily since its all-time high in 2021, when interest rates were at historic lows. Along with the decline in volume, the makeup of refinance loans has changed compared to the year prior. Cash-out refinance loan volume increased from 34% of all refinance originations in 2021, to 74% in Q2 2022. 

"Cash-out refinance loans historically have higher default rates compared to rate-and-term refinancing," says Jonathan Glowacki, a principal at Milliman and author of the MMDI. "In 2022, there's been an increase in cash-out refinance originations compared to the prior year, which is a contributing factor in the increased mortgage default risk we're seeing."

The MMDI reflects a baseline forecast of future home prices. For more on the MMDI, go to www.milliman.com/mmdi/.

To access additional mortgage market thought leadership, go to https://www.milliman.com/en/products/milliman-m-pire.