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DefaultRiskIndex.com Data Shows Mortgage Credit Loosening

DefaultRiskIndex.com Data Shows Mortgage Credit Loosening: 

 Mortgage Risk Consumption and Originations Both Increased Over Same Quarter, Last Year

VantageScore Solutions, LLC, developer of the VantageScore® credit scoring models, announced the 2018 first quarter update to its Default Risk Index (DRI) data series. The latest update reveals that the default risk index (DRI) – a comparison of the total volume and weighted-average risk profile of quarterly originations – specifically in the mortgage category, increased over last year; also marking the highest DRI for this category since Q2 2015.

Changes to specific index values are summarized in the following table:

CATEGORY

 

TOTAL ORIGINATIONS

TOTAL ORIGINATIONS VS. LAST QUARTER

TOTAL ORIGINATIONS VS. SAME QUARTER LAST YEAR

PROBABILITY OF DEFAULT (WEIGHTED)

DEFAULT RISK INDEX

DRI VS. LAST QUARTER

DRI VS. SAME QUARTER LAST YEAR

Auto

153,320,357,065

 .57%

 3.09%

4.26%

96.6

 13.53%

-2.95%

Bankcard

85,187,666,606

 -2.78%

 -6.08%

2.78%

99.0

 3.33%

1.81%

Mortgage

329,167,185,062

-18.15%

2.03%

1.17%

100.9

4.42%

5.63%

Student

23,792,437,256

-3.27%

 -6.55%

18.15%

87.8

.28%

-6.28%

INDEX

A quarterly comparison shows a slight increase in risk consumption in the bankcard and mortgage, while the student loan category remained flat and the auto loan category materially increased risk. On a quarterly basis, the auto industry’s DRI had the largest increase (13.53%); while in the previous three quarters the industry’s DRI has stayed relatively stagnant.

SNAPSHOT

Year-over-year, an increase in both mortgage origination volumes (2.03%) and the mortgage DRI (5.63%) indicate an increased appetite for risk.

ORIGINATIONS

There was a slight increase in originations in the mortgage and auto categories year-over-year (2.03% and 3.09%, respectively). As is typical seasonally, both bankcard and student loan originations slightly declined at the turn of the year. 

 *Each risk profile is indexed to the beginning of the series, where the third quarter of 2013 equals 100. DRI profiles that are close to 100 show an equivalent risk activity to the 2013 benchmark; whereas DRI profiles that fall further from 100 distinguish risk activity that is either higher or lower than the benchmark (depending on the results).

About the Default Risk Index

The VantageScore Default Risk Index (DRI) and its website, DefaultRiskIndex.com, permit users to monitor the shifting quarterly risk profiles of loan originations in the mortgage, credit card, auto, and student loan categories. The DRI is derived using credit file data from TransUnion and VantageScore odds charts— tables furnished to VantageScore users that match values on the 300-850 VantageScore scale range with their corresponding probability of default (PD) values.

The Default Risk Index is a measure of relative changes in risk level, benchmarked against the third quarter of 2013, the first period for which data were compiled. Interactive tools at DefaultRiskIndex.com allow users to view trends for each loan category and freely download the data behind the charts.

The VantageScore Default Risk Index is provided as a free resource to institutional and individual investors, professionals in the securitization field, academics, and all others interested in systemic lending risk. It is updated quarterly, with data reflecting loans issued in the preceding quarter.

VantageScore Solutions and TransUnion developed the DRI to highlight limitations in the traditional ways credit scores are used to evaluate risk for categories or pools of loans. Today’s common practices—using “weighted average” or “distribution by score band” to summarize risk— are mathematically flawed. Reliance on those metrics can result in a miscalculation regarding the true credit quality of a loan pool as well as obscuring meaningful trends and leading a well-intentioned analyst to the wrong conclusions.

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