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» VISIT US ONLINE @ DSNEWS.COM 19 THE RISING RISK OF DEFAULT IN REFIS Refinance loans have a higher stressed default rate compared to any other loan, according to the latest National Mortgage Risk Index (NMRI) released by the American Enterprise Institute's (AEI) Center on Housing Markets and Finance. e reasons for this increase in default rates, the center said, was primarily due to weak appraisal processes for these loans, as well as borrower self-selection. e quarterly index monitors market stability through real-time tracking of leverage and is set up like a stress test that places loans in risk buckets and assesses default risk based on the performance of 2007 vintage loans with similar characteristics. Overall, the NMRI indicated that three key drivers are pushing mortgages towards greater risk. First, a greater availability of income leverage that is allowing borrowers to compensate for home-price appreciation; second, a shift toward lower down payment loans; and third a greater presence of cash- out refis as tappable equity of homeowners' increases. According to AEI, the April refinance NMRI set an all-time series' high driven by a leap in the cash-out index. "With the national sellers' market now in its 70th month, this additional leverage is being absorbed into higher house prices," the report said. "e multiyear surge in home prices, particularly for entry-level homebuyers continues unabated and is fueled by high-risk mortgages guaranteed by taxpayers," noted Edward Pinto, Co-Director of the AEI's Center on Housing Markets and Finance. "We see no halt to this trend so long as FHA, the GSEs, and the VA continue offering easy mortgage credit terms which keep demand well more than supply." e report also indicated a considerable spread of default rates across risk buckets, with borrowers who had a credit score between 620 and 689 falling in the high to very high-risk buckets. Borrowers in this credit score range were likely to have a default rate between 22.7 percent and 45.8 percent, the report indicated. For purchase loans, the NMRI found, credit easing continued with the composite NMRI for purchase loans jumping 0.5 points from its elevated levels a year ago. e first-time buyer index rose 0.6 points on increases in FHA loans. AEI said that the rising prices had a disparate impact on buyers, benefiting repeat buyers through price appreciation and hurting first- time buyers who had to take on more leverage. "Leverage matters for house prices," said Tobias Peter, Senior Research Analyst at AEI's Center on Housing Markets and Finance. "e greater availability of plain-vanilla leverage for lower-income borrowers during the current sellers' market has inflated a house-price boom that is most prevalent at the lower end of the price spectrum." e AEI said the composite index has consistently trended up since mid-2013, with FHA leading the way. With FHA, Fannie, and VA indices all setting new or matched series highs in April, the report projected that unless household income accelerated, future support for the housing market was likely to involve further increases in leverage from an already-high level. Exceleras is a leading provider of real estate transaction management software solutions for banks, servicers, sub servicers, capital market groups, and other mortgage industry professionals. Exceleras software-as-a-service (SaaS) solutions include the DispoSolutions Real Estate Owned (REO), ValueSolutions (Collateral Valuations), and ClearView Offer Management platforms. The systems can be used together or a la carte. » Robust online real estate management software encompassing a nationwide network of real estate professionals » Consumer facing real estate listing portal connecting Buyers and Sellers » Standard, ad hoc and customizable reporting and quality assurance tools » Easily integrated with other platforms (System of Record, etc.) » True automated workflow for exception based management » No start-up cost with quick setup and training www.exceleras.com | 698 Vernon Avenue, Glencoe, IL 60022 | Phone: 847-716-5465 | Support: 847-716-5430 | Email: info@exceleras.com Smarter Software. Better Outcomes. Faster Information. Michael Harris President

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