Housing Credit Availability Index
Updated July 21, 2020
Download the data (Excel file)
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability was 5.5 percent in the first quarter of 2020 (Q1 2020), up slightly from the end of 2019. The government and private label security channels both expanded their credit availability, which, combined with an increase in the government channel’s market share, resulted in an overall increase in the HCAI despite a tightening in the GSE channel.
COVID-19 has triggered a significant tightening of credit which does not show up in the Q1 2020 HCAI. The COVID-related tightening in loans did not materialize until March 2020; These loans will not close until Q2 2020 so we do expect this tightening to show up in our Q2 2020 HCAI.
In addition, some loans in the portfolio and private-label securitization channel (PP) were stranded in the pipeline, which would exaggerate the effect of the shift to the FHA and GSE markets, and could inflate credit availability (as the risk in the PP and GSE channels are similar and the risk in the government change is higher). Unfortunately, since the HCAI is a backward looking index, it will not pick up these developments until the following quarter’s release.
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 a year, and stood at 2.70 percent in the first quarter of 2020. The government channel (FVR) grew slightly to 11.49 percent in Q1 2020; 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 climbed to 2.80 percent in Q1 2020, 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 2020 on October 14, 2020.
HCAI by Channels
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 has nearly doubled, from 1.4 percent to 2.6 percent. This is still very modest by pre-crisis standards. However, over the past year, credit availability has trended down and we anticipate this trend will become more acute in the second quarter of 2020 in response to the COVID-19 crisis.
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 has risen significantly from 9.9 to 12.1 percent. In Q1 2020, 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 total risk in the range of 2.0-3.0 percent. Total risk in the PP channel was 2.77 percent in Q1 2020, consisting of 2.76 percent borrower risk and 0.01 product risk. Note that there was a sizeable contraction in the market share for this channel over the course of the quarter, reflecting both a shift to the agency market since the beginning of the year as well as the fact that some PP loans that were stranded in the pipeline when COVID-19 hit and did not close in March of 2020.