DS News - Carrington

83 83 INVESTMENT GOVERNMENT PROPERTY PRESERVATION DEFAULT RISK ON GSE- BACKED LOANS INCREASES During the first quarter of this year the default risk for purchased and refinanced loans backed by Freddie Mac and Fannie Mae increased for the first time since 2019, when Milliman, providers of actuarial and related products and services, began tracking such data through its mortgage default index. e default rate for Freddie and Fannie loans grew from 1.38% in Q4 2020 to 1.52% for acquisitions originating in Q1 2021, Milliman reported. Millman's index measures borrower, underwriting, and economic risk. "Borrower risk measures the risk of the loan defaulting due to borrower credit quality, initial equity position, and debt-to-income ratio. Underwriting risk measures the risk of the loan defaulting due to mortgage product features such as amortization type, occupancy status, and other factors. Economic risk measures the risk of the loan defaulting due to historical and forecasted economic conditions," according to the publication. "For Freddie and Fannie mortgages that originated in early 2021, we're seeing an increase in the potential for default primarily because of economic risk," says Jonathan Glowacki, a principal at Milliman and author of the MMDI. "Home-price appreciation for these loans is more pessimistic compared to previous quarters, despite underwriting and borrower risk remaining fairly consistent." e report adds that the main driver of the increase in default risk arises from a more pessimistic long-term home price forecast. "Borrower and underwriting risk were generally consistent quarter to quarter. Loans guaranteed by Ginnie Mae also experienced an increase in their default risk in 2021 Q1 relative to the prior quarter. is is predominantly due to the decrease in volume of refinance loans for both GSE and Ginnie originations compared to last quarter," reads Glowacki's report. While the current level of robust home price growth is certainly a function of the pandemic and supply/demand imbalances, it is difficult to estimate how home prices may react post-pandemic, Milliman noted in its press release accompanying the report, adding that "MMDI reflects a baseline forecast of future home prices. To the extent actual or baseline forecasts diverge from the current forecast, future publications of the MMDI will change accordingly." who have signed a binding rent reduction agreement with eligible tenants. A state's unused credits are returned to the national pool. Participating property owners must also comply with the Fair Housing Act. » Increasingly, even middle-income individuals and families are unable to pay rent and still make ends meet. e DASH Act offers a new Middle Income Housing Tax Credit (MIHTC) that would continue where the very successful LIHTC program leaves off, by providing a tax credit to developers who house tenants between 60% and 100% of area median income. e credit would equal 50% of the present value of construction costs, or 5% per year on an undiscounted basis. States would administer the program, and Treasury would annually allocate the credit to states based on a $1 per capita formula with a $1.14 million small state minimum. States could also use MIHTC dollars to augment their LIHTC program. » e DASH Act also features the Neighborhood Homes Investment Act (NHIA), a tax credit to home builders that targets neighborhoods with poverty rates of 130% or greater than the metro or state rate; incomes that are 80% or less than area median income; and home values that are below the metro or state median value. Qualifying homeowners make less than 140% of the area median income. e credits would only be available to investors after the homes have been completed and sold to a homeowner. e maximum credit amount is the lesser of 35% of total development costs or 80% of the national median home sale price. State agencies would receive annual allocations of $6 per capita (or $8 million, if higher), and would award NHIA tax credits to project sponsors. » Down Payment Tax Credit for First-Time Homebuyers, a new $15,000 first-time home buyer tax credit is fully refundable and equal to 20% of the purchase price of a home. e credit phases out above 110% of conforming loan limits (about $603,000 in Oregon) and above $100,000 of income for single filers ($200,000 for joint filers). e credit can be recaptured if the taxpayer resells the home in under five years (with some exceptions). Journal

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