Mortgage credit availability at highest level since 2016

There remains “significant space” to safely expand the credit box

Mortgage credit availability at highest level since 2016
by Francis Monfort

A key index of the Urban Institute’s Housing Finance Policy Center saw mortgage credit availability rise to 5.4 during the first quarter this year – its highest level since 2016.

The organization’s “Housing Credit Availability Index” tracks the rate of home loans that are likely to default. A lower figure indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan, it said. On the other hand, a higher mark signifies that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.

By channel, mortgage credit availability in Fannie Mae and Freddie Mac saw its highest level since its low in 2011. The government-sponsored enterprises (GSE) channel has seen more effective credit-box expansion for borrowers than the government channel (FVR) in recent years. The GSE channel saw the downward trend in credit availability reverse in the second quarter of 2011, with total risk taken by the channel increasing 69% from 1.4% during that quarter to 2.3% in the first quarter of 2017.

The FVR and portfolio and private-label securities (PP) channels saw total default risk continue to remain near or at record lows.

With a low of 9.6% in the third quarter of 2013, the total default risk in the FVR channel has since fluctuated at or above that number. The channel, which includes the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture Rural Development programs, saw a slight increase to 10.0% in the first quarter of 2017 from 9.8%.

After seeing sharp decreases in product and borrower risks after the crisis, the PP channel has since seen numbers stabilize beginning in 2013. However, total default risk taken by the channel remained low at 2.3% in the first quarter, with only 0.20% product risk during the quarter.

There remains “significant space” to safely expand the credit box, the Housing Finance Policy Center said. It added that risk would be well within the 12.5% pre-crisis standard from 2001 to 2003 for the whole market even if all channels had double the current default risk.


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