Updated January 12, 2016
The Housing Policy Finance Center’s latest credit availability index (HCAI) shows that mortgage credit availability dipped slightly to 5.0 in the third quarter of 2015 (Q3 2015), down from 5.3 in the previous quarter. Although availability still remains above the record low of 4.6 in the third quarter of 2013 (Q3 2013), we do see a downward trend over the past four quarters.
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 over the past three quarters since the low hit in 2010. Credit availability in the government channel (FVR), which comprises the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture Rural Development program, has decreased over the past four quarters, although it is still above its record low in 2013. Credit availability in the portfolio and private-label securities channel continued to stay below the record-low 3 percent established in 2013.
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 in 2001–03 for the whole mortgage market.
We will publish an updated HCAI for Q4 2015 in early April 2016.
HCAI by Channels
The GSE market has expanded the credit box for borrowers more effectively than the FVR government channel has in recent months. The downward trend of credit availability in the GSE channel was reversed in Q2 2011. From Q2 2011 to Q3 2015, the total risk taken by the GSE channel increased 50 percent, from 1.4 percent to 2.1 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 since then and stood at 9.8 percent in Q3 2015. The 9.8 percent credit risk for the government channel is just under 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 both dropped sharply. They have stabilized since 2013, with product risk fluctuating around 0.6 percent and borrower risk around 2.0 percent between 2013 and 2014. However, the PP channel took even less product risk (only 0.1 percent) in the first three quarters of 2015. The total default risk taken by this market is currently at 2.4 percent, which matches its record low.