Housing Credit Availability Index

Q2 2019
Updated October 25, 2019

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HCAI index default risks taken by Mortgage Market 1998Q1 - 2019Q2

The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability decreased slightly to 5.56 percent in the second quarter of 2019 (Q2 2019), down marginally from the previous quarter. The decline was driven by an increase in the portfolio and private label share of the mortgage market and a decrease in the government share, which has relatively higher risk. Credit availability fell slightly in the government and GSE channels, and increased in the portfolio and private-label security channels.

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 3.1 percent in Q1 2019. In Q2 2019, the index declined slightly, standing just under 3 percent. The government channel (FVR) decreased to 12.0 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 increased to 3.1 percent, but still remains 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 Q3 2019 on January 14, 2019.

HCAI by Channels

GSE Loans

The trend toward greater credit availability in the GSE channel began in Q2 2011. From Q2 2011 to Q2 2019, the total risk taken by the GSE channel has more than doubled, from 1.4 percent to 3.0 percent. This is still very modest by pre-crisis standards.

HCAI index default risks taken by Gov-Sponsored Enterprises 1998Q1 - 2019Q2

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 past eleven quarters starting in Q4 2016, the risk in the government channel has risen significantly from 9.9 to 12.0 percent. In Q2 2019, the risk in the government channel was at the higher end of that range, but still around half the pre-bubble level of 19 – 23 percent.

HCAI index default risks taken by Govt Channel 1998Q1 - 2019Q2

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 increased in the second quarter of 2019, after an increase in the previous quarter, reflecting the continued growth in the expanded credit market. Total risk in the PP channel was 3.1 percent in Q2 2019.

HCAI index default risks taken by Portfolio and Private-Label Securities Channels 1998Q1 - 2019Q2