Housing Credit Availability Index
Updated January 14, 2021
Download the data (Excel file)
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability was just under 5.0 percent in the third quarter of 2020 (Q3 2020), down from 5.1 percent in Q2 2020 and the lowest it has been since the introduction of the index. Credit tightening in the mortgage market was ubiquitous in Q3 2020, with originations from the government-sponsored enterprise (GSE), government and portfolio and private-label securitization channels all serving borrowers with a higher quality of credit than borrowers in Q2 2020.
Tighter credit in the agency (GSE and government) market due to the COVID-19 crisis materialized at the close of Q1 2020 and continued into Q3, with credit overlays by lenders cutting off mortgage availability for borrowers with less-than pristine credit. Portfolio and private-label lending has moved into the background for purchase originations during the pandemic, with a significant contraction in their market share.
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— had been gently 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 3.1 percent in Q1 2019. The index has since declined, falling over the course of 2019 to 2.7 percent in the first quarter of 2020 and declining further in Q3 2020 to 2.5 percent. The government channel (FVR) dropped to 10.4 percent in Q3 2020, having hit its the highest level in a decade of 12.2 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 fell to 2.8 percent, remaining near the record low for the amount of default risk taken in this channel.
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 Q4 2020 on April 14, 2021.
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 2.7 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 Q3 2020, the result of accelerated tightening over the first three quarters of 2020 induced by market conditions due to the pandemic.
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. 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 has reduced risk in Q2 and Q3 2020, declining to 10.4 percent in Q3, moving closer to 2016 levels and 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 0.5 percent and total risk largely in the range of 2.3-3.0 percent; it was 2.8 percent in Q3 2020. However, the PP market share has plummeted during the COVID-19 crisis, as borrowers increasingly used government or GSE channels or could not obtain a mortgage at all.