Housing Credit Availability Index

Q1 2021
Updated August 17, 2021

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Graph of HCAI index default risks taken by Mortgage Market 1998Q1 - 2021Q1

The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability was 5.1 percent in the first quarter of 2021 (Q1 2021), up from a historic low in Q3 2020 of just below 5.0 percent and just slightly above the Q4 2020 level. Credit loosening from Q3 2020 to Q1 2021 was led by increased borrower default risk by all three major origination channels, as well as a shift in market composition, with the GSE channel, the channel with the tightest credit standards, making up a smaller portion of total purchase originations. There was a significant jump in the portfolio and private label channel, and a smaller increase in the government channel.

Tighter credit in the agency market due to the COVID-19 crisis materialized at the close of Q1 2020 and continued into Q3, with credit overlays denying mortgage availability for borrowers with less-than pristine credit. Q4 2020 was the only period during 2020 where origination characteristics showed an increased tolerance for default risk. Portfolio and private-label lending had stepped into the background for purchase originations during most of the COVID crisis, but has since regained ground in Q4 2020 and Q1 2021.

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 went through a period of tightening for the remainder of 2019 and 2020, dropping to 2.53 percent in Q4 2020. Availability increased in Q1 2021 to 2.58 percent, the first expansion since Q1 of 2019. The government channel (FVR) increased to 10.76 percent in Q1 2021, it reached 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 increased to 2.80 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 Q2 2021 on October 14, 2021.

HCAI by Channels

GSE Loans

The trend toward greater credit availability in the GSE channel began in Q2 2011. From Q2 2011 to Q1 2020, the total risk taken by the GSE channel doubled, from 1.4 percent to 2.7 percent. This is still very modest by pre-crisis standards. However, accelerated tightening throughout 2020 induced by market conditions due to COVID-19 drove down credit risk to 2.5 percent in Q4 2020. The increase in Q1 2021, to 2.58 percent, marks the first expansion of credit availability in the GSE channel since Q1 2019.

Map of HCAI index default risks taken by Gov-Sponsored Enterprises 1998Q1 - 2021Q1

Government Loans

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 eleven quarters from Q4 2016 to Q1 2019, the risk in the government channel increased significantly from 9.9 to 12.1 percent but has since receded. After declining to 10.4 percent in Q3 of 2020, the government channel has increased risk in two consecutive quarters to 10.8 percent in Q1 2021; still far below the pre-bubble level of 19 – 23 percent.

 Map of HCAI index default risks taken by Govt Channel 1998Q1 - 2021Q1

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 0.5 percent and total risk largely in the range of 2.3-3.0 percent; it was 2.8 percent in Q1 2021. However, the PP market share plummeted during the COVID-19 crisis, as borrowers increasingly used government or GSE channels or could not obtain a mortgage at all. The PP share increased in both Q4 2020 and Q1 2021 but remains a shadow of what it once was.

Map of HCAI index default risks taken by Portfolio and Private-Label Securities Channels 1998Q1 - 2021Q1