Updated October 12, 2017
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The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability declined to 5.1 in the second quarter of 2017 (Q2 2017), after reaching a recent peak of 5.4 in Q1 2017. This decline was mostly driven by a shift in market composition, with the government channel losing market share to the portfolio channel, where lending standards are tighter. In the meantime, credit continued to expand within the GSE and government channels, thanks to higher interest rates and lower refinance volumes.
The HCAI measures the share 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 enterprise (GSE) channel—Fannie Mae and Freddie Mac—has rebounded to 2.4 since its low of 1.4 in 2011. Both the government (FVR) channel and portfolio and private-label securities (PP) channel remain close to or at record lows. The FVR channel includes the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture Rural Development programs.
Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be within the precrisis (2001–03) standard of 12.5 percent for the whole mortgage market.
We will publish an updated HCAI for Q3 2017 in January 2018.
HCAI by Channels
The GSE market has expanded the credit box for borrowers more effectively than the FVR channel has. The downward trend of credit availability in the GSE channel was reversed in Q2 2011. From Q2 2011 to Q2 2017, the total risk taken by the GSE channel increased 73 percent, from 1.4 to 2.4 percent.
The total default risk the government loan channel is willing to take bottomed out at 9.6 percent in Q3 2013. It has fluctuated at or above that number since then. In Q2 2017, the risk in the government channel rose from 10.0 to 10.7 percent, which is still about half the pre-bubble level.
Portfolio and Private-Label Securities Loans
The PP channel took higher product risk than the FVR and GSE channels during the bubble. After the crisis, the channel’s product and borrower risks dropped sharply. The numbers have stabilized since 2013, with product risk fluctuating below 0.6 percent and borrower risk around 2.0 percent. The PP channel took only 0.19 percent product risk in Q2 2017. The total default risk taken by this market remains low, at 2.1 percent in Q2 2017.