Default risk for Fannie Mae, Freddie Mac-backed loans increases

“Rising interest rates typically translate to fewer refinance loans or higher-risk refinance loans, leading to increased overall borrower risk for the GSEs,” said Jonathan Glowacki, a principal at Milliman and author of the MMDI. “Combined with inflation, we’re anticipating a slowdown in home price growth, which is what’s driving the uptick in mortgage default risk.”

Originations of GSE-backed loans continued to drop from the fourth quarter of 2021 to the first quarter of 2022. Of these mortgages, refinance loans made up more than half of originations (roughly 57%), which is generally consistent with the prior quarter.