Updated April 12, 2016
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability increased slightly to 5.6 in the fourth quarter of 2015 (Q4 2015), up from 4.9 in the previous quarter. It reverses the downward trend which has been running 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 four quarters since its low in 2010. 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 Q1 2016 in early July 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 Q4 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 10 percent in Q4 2015. The 10 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 dropped sharply. They have stabilized since 2013, with product risk fluctuating around 0.6 percent and borrower risk around 2.0 percent from 2013 to 2014. However, the PP channel took even less product risk (only 0.2 percent) in Q4 2015. The total default risk taken by this market is currently at 2.3 percent, which matches its record low.