Obtaining a mortgage is getting just a bit easier, but lenders are still much too cautious, depressing housing demand and ultimately holding back a broader economic recovery.
Our latest Housing Credit Availability Index (HCAI) shows that as of the end of March 2015, the rating had increased to 5.7 compared with 4.6 at the end of September 2013. The Housing Finance Policy Center’s index measures the percent of purchase loans that are likely to default, meaning to go unpaid for more than 90 days past their due date. Lower ratings indicate that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher rating indicates that lenders are taking more risks, allowing more defaults and making it easier to get a loan.
Since September 2013, the government-sponsored enterprise (GSE) channel eased 17 percent, while the Federal Housing Administration, Veteran’s Affairs and Rural Housing channels eased 12.5 percent. Clearly, government efforts to expand the credit box, particularly those of the Federal Housing Finance Agency which oversees the GSEs, are succeeding.
But is this increase enough to satisfy our call to open the credit box? No. Our efforts should continue until we are much closer to 12.5, the rating from 2001 to 2003, the years when most agree that mortgage lending standards were reasonable, safe and sustainable.