The risk of mortgages for first-time homebuyers increased in October compared to 2013, according to data released this week by the American Enterprise Institute (AEI).
AEI’s risk index for first-time buyers was 14.56 percent in October, almost 1 percentage point higher than a year earlier. The think tank’s International Center on Housing Risk released the measure for the first time based on its database of millions of national mortgage loans.
Among all the mortgage loans guaranteed by government agencies, 52 percent went to first-time buyers in the last year. Fannie Mae and Freddie Mac, known as government-sponsored enterprises (GSEs), continue to purchase a majority of loans in the housing market and are likely to remain under federal control.
The heightened risk in the market has led some experts to express concerns that government officials could again be creating a housing bubble to stimulate the economy. The last bubble burst spectacularly in 2008, when risky or "subprime" mortgages owned by Fannie and Freddie defaulted in large numbers.
AEI noted in a release last month that there are still too many high and medium-risk loans to ensure a stable housing market.
"Loan risk is greater than a level conducive to long-run market stability, with low-risk loans accounting for only slightly more than 40% of activity in October," the release said.
Federal Housing Finance Agency (FHFA) Director Mel Watt, head of the regulator of Fannie and Freddie, has pledged to loosen lending standards to encourage more home sales. However, demand for homes remains weak as first-time buyers grapple with surging prices, stagnant wages, and student loan debt.