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Mortgage Credit Access Reverses Course

frozen-creditCredit availability in the mortgage industry increased slightly in the fourth quarter, reversing a long-time downward trend over the last four quarters.

The Urban Institute' s Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability rose to 5.6 in the fourth quarter of 2015, up from 4.9 in the previous quarter.

According to the Institute, the HCAI measures the percentage of home purchase loans that are likely to default, or 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." the report said. "A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan."

According to the report, mortgage credit availability among Fannie Mae and Freddie Mac has been at the highest level over the past four quarters since its low in 2010 and reversing course in the second quarter of 2011. From the second quarter of 2011 to the fourth quarter of 2015, the total risk taken by the GSE channel increased 50 percent, from 1.4 percent to 2.1 percent.

Urban Institute stated that both the government channel (Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture Rural Development program) and portfolio and private-label securities channel remain close to or at the record low on the amount of default risk taken by the two markets.

"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 precrisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market," Urban Institute said.

Recent reports have shown a different picture of mortgage credit access among lenders. Fewer mortgage lenders are reporting that they are loosening credit standards, and many do not expect credit to become more accessible over the next few months.

The share of mortgage lenders reporting easing credit standards over the prior three months fell for the second straight quarter, according to Fannie Mae’s first quarter 2016 Mortgage Lender Sentiment Survey conducted in February. In addition, the survey also found that the share of lenders that expect credit standards to ease over the next three months decreased from last quarter for all mortgage types.

Fannie Mae reported that 13 percent of lenders surveyed noted that credit standards eased over the last three months in the first quarter of 2016, down from 17 percent in the previous quarter. Over the next three months, 13 percent of lenders said credit standards will ease, down from 18 percent last quarter. Five percent of lenders said that credit tightened over the last three months, up from 4 percent last quarter. Only 7 percent of lenders said credit will tighten over the next three months, the same as last quarter.

Doug Duncan, SVP and Chief Economist at Fannie Mae, explained, "Lender expectations for easing over the next three months have also moderated. Many lenders also indicate a likely increase in the sales of mortgage servicing rights, possibly to compensate for these countervailing pressures on profits and to take advantage of current favorable pricing in the market.”

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