Updated January 15, 2020
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The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability decreased slightly to 5.29 percent in the third quarter of 2019 (Q3 2019), down marginally from the previous quarter. The decline was driven by a small drop in credit availability in all three channels, with the largest decrease in the government channel, as well as a small increase in the portfolio and private label share, which is relatively lower risk.
The HCAI measures the percentage of owner-occupied 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 GSE channel—Fannie Mae and Freddie Mac— has generally been increasing since the financial crisis. In Q3 2018, the index reached 3 percent for the first time since 2008, and then continued to increase in the following two quarters, reaching 3.1 percent in Q1 2019. In Q2 and Q3 2019, the index declined slightly, and stands at 2.83 percent in Q3 2019. The government channel (FVR) decreased to 11.60 percent, after reaching the highest level since 2009 in the first quarter of 2019. The FVR channel includes the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture’s Rural Development program. The portfolio and private-label securities channel decreased to 2.73 percent, remaining near the record low for the amount of default risk taken.
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 pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.
We will publish an updated HCAI for Q4 2019 on April 14, 2020.
HCAI by Channels
The trend toward greater credit availability in the GSE channel began in Q2 2011. From Q2 2011 to Q3 2019, the total risk taken by the GSE channel has doubled, from 1.4 percent to 2.8 percent. This is still very modest by pre-crisis standards.
The total default risk the government loan channel is willing to take bottomed out at 9.6 percent in Q3 2013. It fluctuated in a narrow range at for above that number for three years. In the past eleven quarters starting in Q4 2016, the risk in the government channel has risen significantly from 9.9 to 12.1 percent. In Q3 2019, risk in the government channel was near the higher end of that range, but still far below the pre-bubble level of 19 – 23 percent.
Portfolio and Private-Label Securities Loans
The portfolio and private-label securities (PP) channel took on more 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 well below 0.6 percent and borrower risk in the range of 2.0-3.0 percent. Borrower risk decreased in the third quarter of 2019, and now stands at 2.72 percent, down from 2.78 percent in Q2 2019. Total risk in the PP channel was 2.73 percent in Q3 2019.