Mortgage credit availability rose slightly from 5.1 percent to 5.6 percent in the third quarter of 2017 according to the Urban Institute’s Housing Finance Policy Center’s latest credit availability index (HCAI). This increase has taken the index to the highest level since 2013 and was mainly driven by credit expansions within both the government sponsored enterprises (GSEs) and government channels, due to higher interest rates and lower refinance volumes.
The HCAI measures the percentage of home loans that are likely to go unpaid for more than 90 days past their due date and a higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier for borrowers to get a loan.
The report indicated that mortgage credit availability at both, Fannie Mae and Freddie Mac was at the highest level since 2011 and its credit box for borrowers had expanded more effectively than the government channels. From Q2 2011 to Q3 2017, the total risk taken by GSEs increased 86 percent from 1.4 percent to 2.5 percent.
The government channel reached its highest level since 2012 after increasing for three consecutive quarters in 2017, the report said. In the first three quarters of 2017, the risk in government channel rose from 9.8 percent to 11.1 percent. The government channel includes the Federal Housing Administration, The US Department of Veteran Affairs and the US Department of Agriculture Rural Development programs.
Portfolio and private label securities channel continued to stay close to or at the record low for the amount of default risk taken. The channel took only 0.2 percent product risk in Q3 2017 even as the total default risk taken by this market remained at a low of 2.2 percent in the third quarter of 2017.
Even if the current default risk was doubled across all channels, it would still be within the precise standard of 12.5 percent from the 2001 to 2003 levels, the report said.