Updated October 2016
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability continued to edge down from 5.3 to 5.1 in the second quarter of 2016 (Q2 2016).
The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.
Mortgage credit availability in the government-sponsored enterprises (GSE) channel—Fannie Mae and Freddie Mac—has been at the highest level since its low in 2011. Both the government channel (FVR) and portfolio and private-label securities channel continued to stay close to or at the record low on the amount of default risk taken by the two markets. FVR channel comprises the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture Rural Development program.
Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the precrisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.
We will publish an updated HCAI for Q3 2016 in January 2017.
HCAI by Channels
The GSE market has expanded the credit box for borrowers more effectively than the FVR government channel has in recent years. The downward trend of credit availability in the GSE channel was reversed in Q2 2011. From Q2 2011 to Q2 2016, the total risk taken by the GSE channel increased 57 percent, from 1.4 percent to 2.2 percent.
The total default risk the government loan channel is willing to take bottomed out at 9.6 percent in Q3 2013. It climbed to 10.5 percent in Q4 2014 but has dropped slightly to 9.6 in Q3 2015. Since then it started to expand again, and stood at 10.3 percent in Q2 2016. The 10.3 percent credit risk for the government channel is still about half the prebubble level.
Portfolio and Private-Label Securities Loans
The portfolio and private-label securities (PP) channel took much higher product risk than the FVR and GSE channels during the bubble. After the crisis, the channel’s product and borrower risks dropped sharply. They have stabilized since 2013, with product risk fluctuating below 0.6 percent and borrower risk around 2.0 percent. The PP channel took even less product risk (only 0.15 percent) in Q2 2016. The total default risk taken by this market declined slightly again to 2.2 percent, after the small increase in the past two quarters.