Updated April 12, 2018
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The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability rose, for the second quarter in a row, from 5.6 to 5.8 percent in the fourth quarter of 2017 (Q4 2017), the highest level since 2013. This increase was mainly driven by credit expansions within both the government-sponsored enterprise (GSE) and government channels, thanks to higher interest rates and lower refinance volumes.
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 GSE channel—Fannie Mae and Freddie Mac—has been at the highest level since its low in 2011. The government channel (FVR) reached its highest level since 2012 after increasing for four consecutive quarters in 2017. The FVR channel includes the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture Rural Development programs. The private-label securities channel continued to stay close to or at 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 Q1 2018 on July 12, 2018.
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 Q4 2017, the total risk taken by the GSE channel has more than doubled, from 1.4 percent to 2.9 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 the four quarters of 2017, the risk in the government channel rose significantly from 9.8 to 11.2 percent, which is the highest level since 2012 but still about half the pre-bubble level of 19 – 23 percent.
Portfolio and Private-Label Securities Loans
The portfolio and private-label securities (PP) channel took a 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 0.2 percent product risk in Q4 2017. The total default risk taken by this market remains low at 2.3 percent in Q4 2017.