PROJECTHousing Credit Availability Index

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  • Q4 2023
    Updated April 30, 2023

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    Default Risk Taken by the Mortgage Market, 2000Q1–2023Q4

    The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability stood at 4.92 percent in Q4 2023, down slightly from Q3 2023, but up year-over-year. The loosening from Q4 2022 to Q4 2023 reflects an increase in default risk taken across overall, led by a 17 percent increase among portfolio and private label securities. There was tightening in the government channel, with a nearly nine percent decline in default risk taken year-over-year, a slight tightening in the GSE channel, with the year-over-year decline in default risk below two percent.

    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 had regained some ground from Q4 2020 to Q4 2023.

    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. Availability continued to expand in Q3 2021 to 2.71 percent, the highest level since Q3 2019 before decreasing again to 2.70 percent in Q4 2021 and continuing to decrease to 2.52 percent as of Q4 2022. Availability in the government channel (FVR) declined at the start of the pandemic, from 11.49 percent in Q1 2020 to 10.38 in Q3 2020 before gradually recovering to 11.34 in Q3 2021. Availability in the government channel remained steady from Q4 2021 before steadily decreasing again, reaching 9.90 in Q4 2023. 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 slightly increased from 2.9 percent in Q3 2023 to 3.0 percent in Q4 2023, 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.

    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, marked the first expansion of credit availability in the GSE channel since Q1 2019. In Q4 2023, credit availability stood at 2.48 percent, at parity with availability in Q3 2022.

    Default Risk Taken by the Government-Sponsored Enterprises Channel, 2000Q1–2023Q4

    Government Loans

    The total default risk the government loan channel is willing to take bottomed out at 9.8 percent in Q4 2013. It fluctuated in a narrow range at or 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 had begun to increase risk to 11.3 percent up until Q1 2022 but has since dropped to 9.9 percent in Q4 2023; far below the pre-bubble level of 19 to 23 percent.

    Default Risk Taken by the Government Channel, 2000Q1–2023Q4

    Portfolio and Private-Label Securities Loans

    The portfolio and private-label securities (PP) channel took on more product risk than the government 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 2.3-3.1 percent; it was 3.1 percent in Q4 2023. This is a shadow of the default risk taken prior to the Great Financial Crisis.

    Default Risk Taken by the Portfolio and Private-Label Securities Channel, 2000Q1–2023Q4
    Research Areas Housing finance
    Policy Centers Housing Finance Policy Center