Updated January 12, 2017
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability edged up from 5.0 to 5.1 in the third quarter of 2016 (Q3 2016), reversing the declining trend in the first half of 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. The FVR channel comprises the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture Rural Development program.
Significant space remains to safely expand the credit box. If the current default risk were 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 Q4 2016 in April 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 Q3 2016, the total risk taken by the GSE channel increased 58 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 has fluctuated at or above that number since then. In Q3 2016, the risk in the government channel declined from 10.3 to 10.0 percent, which is about half the pre-bubble 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. 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 even less product risk—only 0.14 percent in Q3 2016. The total default risk taken by this market remains low at 2.2 percent in Q3 2016 despite a small uptick this quarter