Fannie and Freddie mortgages grew less risky last quarter, but the pandemic may reverse the trend
Default risk remained low in the fourth quarter of 2019 due to a low interest-rate environment, but will likely rise in the first half of 2020, according to Milliman's latest analysis.
The Milliman Mortgage Default Index (MMDI) for government-backed mortgages fell to an estimated default rate of 1.82% during Q4, down from 1.88% in Q3 2019. The rate represented the average lifetime probability of default for all GSE mortgages originated in the fourth quarter.
For Ginnie Mae loans, the MMDI rate jumped from 8.26% to 8.75% quarter over quarter. Despite the low default rate in the previous quarter, economic uncertainty from the pandemic has strained mortgage performance.
"Given the number of Americans that have filed for unemployment benefits as a result of the COVID-19 pandemic, we anticipate a likely increase in mortgage delinquency rates in the first half of 2020," said Jonathan Glowacki, principal and consulting actuary at Milliman and co-author of the MMDI. "And while the economic and housing market slowdown resulting from the pandemic could impact long-term mortgage performance, the robust home price growth from the past several years may help ease the default risk somewhat."
