Housing Credit Availability Index

Q4 2020
Updated May 7, 2021

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Graph of HCAI index default risks taken by Mortgage Market 1998Q1 - 2020Q4

The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability was 5.1 percent in the final quarter of 2020 (Q4 2020), up slightly from a historic low in Q3 of just below 5.0 percent. Credit loosening from Q3 to Q4 2020 was led by increased borrower default risk among government channel originations, as well as a shift in market composition, with the GSE channel making up a smaller portion of total purchase originations.

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 marked the only period during the year 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 regained some ground in the final quarter of 2020.

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, falling over the course of 2019 to 2.70 percent in the first quarter of 2020 and declining further through the remainder of 2020 to 2.53 percent in Q4. The government channel (FVR) stands at 10.56 percent as of Q4, 2020, a marginal increase from the preceding quarter, but well below the post-crisis peak reached 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 2.74 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 2021 on August 11, 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 had nearly doubled, from 1.4 percent to 2.7 percent. This is still very modest by pre-crisis standards. However, over the past year credit availability has trended down, standing at 2.5 percent in Q4 2020, the result of accelerated tightening throughout 2020 induced by market conditions due to COVID-19.

Map of HCAI index default risks taken by Gov-Sponsored Enterprises 1998Q1 - 2020Q4

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. The government channel reduced risk in quarters two and three of 2020, declining to 10.4 percent in Q3 but increased risk in Q4 to 10.6 percent; still far below the pre-bubble level of 19 – 23 percent.

 Map of HCAI index default risks taken by Govt Channel 1998Q1 - 2020Q4

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 2.7 percent in Q4 2020. It is important to realize 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 slightly in Q4 but remains a shadow of what it once was.

Map of HCAI index default risks taken by Portfolio and Private-Label Securities Channels 1998Q1 - 2020Q4