The Milliman Mortgage Repurchase Index (MMRI) is a lifetime repurchase rate estimate calculated at the loan level for a portfolio of single-family mortgages. For the purposes of this index, repurchase rate is defined as the likelihood that a loan will have to be bought back by the original lender from the secondary market agency, Fannie Mae or Freddie Mac. The results of the 2024 Q4 study reflect the most recent acquisition data available from Fannie Mae and Freddie Mac, with measurement dates starting from January 1, 2023.
Key findings
The value of the MMRI for government sponsored enterprise (GSE) acquisitions is up slightly for both Freddie Mac (0.298% to 0.301%) and Fannie Mae (0.172% to 0.177%). Borrower risk attributes have improved on average; however, this has been offset in the model by less favorable borrower spreads at origination as well as a higher concentration of cash-out refinance loans.
Figure 1: MMRI 2024 Q4 dashboard for GSE loans
Summary of trends
Over 2024 Q4, our latest MMRI results show that repurchase risk has increased for GSE acquisitions.
The increase has largely been driven by less favorable borrower spreads (note rate less the average market rate at origination). From origination cohort 2024 Q3 to 2024 Q4, the spread has increased for both purchase and refinance loans. Figure 2 depicts the change in spread segmented by loan purpose and GSE.
Figure 2: Borrower spread by origination quarter and loan purpose
| Freddie Mac | Fannie Mae | |||
|---|---|---|---|---|
| Loan Purpose | 2024 Q3 | 2024 Q4 | 2024 Q3 | 2024 Q4 |
| Purchase | -0.34% | -0.01% | -0.41% | -0.12% |
| Rate/Term | -0.55% | -0.29% | -0.52% | -0.29% |
| Cash-out | -0.10% | 0.19% | -0.14% | 0.16% |
Higher spreads are associated with higher repurchase rates. Repurchase rates increase substantially more when the spread is positive (i.e., the borrower rate is above the market rate). This trend is something to monitor as borrower spreads approach moving from negative to positive.
Borrower spreads on cash-out refinance loans have flipped from negative to positive as of this origination quarter. In addition to having higher spreads on average, cash-out refinance loans are associated with higher repurchase risk. The 2024 Q4 Cohort has seen an increase in this loan type as a percentage of origination volume, depicted in figure 3.
Figure 3: Loan mix as a percent of origination volume
| Loan Purpose | ||||
|---|---|---|---|---|
| Origination Quarter | Volume ($B) | Purchase | Rate/Term | Cashout |
| 2023 Q1 | $ 131.7 | 84.7% | 4.8% | 10.5% |
| 2023 Q2 | $ 178.4 | 87.8% | 3.9% | 8.2% |
| 2023 Q3 | $ 169.3 | 88.5% | 3.4% | 8.2% |
| 2023 Q4 | $ 130.2 | 88.1% | 3.9% | 8.0% |
| 2024 Q1 | $ 134.7 | 84.6% | 6.0% | 9.4% |
| 2024 Q2 | $ 183.8 | 87.8% | 4.3% | 7.9% |
| 2024 Q3 | $ 190.0 | 82.2% | 9.3% | 8.6% |
| 2024 Q4 | $ 175.2 | 73.9% | 16.0% | 10.1% |
Cash-out refinances have comprised their highest share since the 2023 Q1 origination cohort. This trend is consistent for both Freddie Mac and Fannie Mae and has contributed to the higher repurchase rates.
Despite higher repurchase rates for both GSEs, these have been somewhat mitigated by improving borrower attributes. The average credit score has improved from 756 to 758 for Freddie Mac originations compared to the previous quarter. In addition, the average LTV has decreased for both Fannie Mae (77.0 to 76.4) and Freddie Mac (77.4 to 76.5), which has caused lower expected repurchase rates.
Borrowers receiving appraisal waivers as a share of the overall origination volume has also risen over the last few quarters, keeping modeled repurchase rates low. Because borrowers need to go through a qualification to receive an appraisal waiver, the likelihood of a loan defect is typically lower. The rise in appraisal waiver volume is shown in figure 4.
Figure 4: Percent of volume receiving an appraisal waiver
| Origination Quarter | Volume ($B) | Received Appraisal Waiver | Did not receive Appraisal Waiver |
|---|---|---|---|
| 2023 Q1 | $131.7 | 11.2% | 88.8% |
| 2023 Q2 | $178.4 | 11.4% | 88.6% |
| 2023 Q3 | $169.3 | 12.1% | 87.9% |
| 2023 Q4 | $130.2 | 9.9% | 90.1% |
| 2024 Q1 | $134.7 | 0.6% | 99.4% |
| 2024 Q2 | $183.8 | 9.0% | 91.0% |
| 2024 Q3 | $190.0 | 15.0% | 85.0% |
| 2024 Q4 | $175.2 | 16.4% | 83.6% |
Origination Cohorts 2024 Q3 and Q4 have exhibited higher appraisal waiver rates relative to the previous two years of loan originations.
This publication of the MMRI uses the most recent data available to provide timely information on credit trends.
About the Milliman Mortgage Repurchase Index
Milliman is expert in analyzing complex data and building econometric models that are transparent, intuitive, and informative. We have used our expertise to assist multiple clients in developing econometric models for evaluating mortgage risk both at the point of sale and for seasoned mortgages.
The Milliman Mortgage Repurchase Index uses econometric modeling to develop a dynamic model that is used by clients in multiple ways. Because the Milliman Mortgage Repurchase Index produces a lifetime repurchase rate estimate at the loan level, it is used by clients as a benchmarking tool in loan defect pricing. The repurchase scoring methodology is constructed separately for repurchases that occurred while loans were either active or delinquent. For new origination cohorts, Milliman applies these scoring methodologies and weights them using the probability the loan will roll into serious delinquency. A mix of borrower attributes and loan characteristics are used to identify trends most associated with loan repurchase.
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Milliman's Mortgage Practice is dedicated to providing strategic, quantitative, and other consulting services to leading organizations in the mortgage banking industry. Past and current clients include many of the nation's largest banks, private mortgage guaranty insurers, financial guaranty insurers, institutional investors, and governmental organizations.