Updated April 17, 2020
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The Housing Finance Policy Center’s latest housing credit availability index (HCAI) shows that mortgage credit availability was 5.3 percent in the fourth quarter of 2019 (Q4 2019), relatively constant with the previous quarter. There was a small drop in credit availability in all three channels, and a small increase in the market share of the government channel, which is relatively higher risk than the other channels. Note that these Q4 2019 numbers do not pick up any of the significant credit tightening that has occurred in the wake of the COVID-19 pandemic.
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 3.07 percent in Q1 2019. The index has since declined for the remaining quarters of the year, and stood at 2.70 percent in the fourth quarter of 2019. The government channel (FVR) decreased to 11.46 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 2.60 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 Q1 2020 on July 14, 2020.
HCAI by Channels
The trend toward greater credit availability in the GSE channel began in Q2 2011. From Q2 2011 to Q4 2019, the total risk taken by the GSE channel has nearly doubled, from 1.4 percent to 2.7 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 above that number for three years. Over 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 Q4 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 fourth quarter of 2019, and stood at 2.59 percent in Q4 2019, down from 2.78 percent in Q2 2019. Total risk in the PP channel was 2.60 percent in Q4 2019.