DefaultRiskIndex.com Data Shows Mortgage Originations Volumes Decreased from Previous Quarter with Slight Decline in Risk-Taking Consumption Overall
VantageScore Solutions, LLC, developer of the VantageScore® credit scoring models, today announced the fourth quarter 2017 update to its Default Risk Index (DRI) data series. The latest update reveals a drop in mortgage lending originations from the previous quarter while its default risk index (DRI) – a comparison of the total volume and weighted-average risk profile of quarterly originations – slightly and steadily increased over time.
Changes to specific index values are summarized in the following table:
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
For the third consecutive quarter, the risk profile of new auto originations became more conservative. The auto industry’s DRI of 85.1 remains significantly lower (i.e., less risky) than when the index began in 2013, while bankcard and mortgage loans remain only marginally below 2013 levels.
Mortgage was the only category in the quarter to increase risk-taking both sequentially and year-over-year. This slight loosening coincided with a drop in originations of 17.5% as compared to the same quarter last year.
On a sequential basis, origination volumes declined across every category. While the steep decline in student lending is consistent with seasonal expectations, the decline in mortgage originations (5.2% vs. last quarter, 17.5% vs. last year) is more noteworthy.
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 will be 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.