Urban Institute: ‘Significant Space’ to ‘Safely Expand the Credit Box’

Mortgage credit availability increased from 5.1% to 5.6% during the third quarter, according to the Urban Institute’s Housing Finance Policy Center’s credit availability index (HCAI).

That’s the highest reading since 2013.

The increase was driven by credit expansions within both the government-sponsored enterprise (GSE) and government channels.

Higher interest rates and lower refinance volumes helped drive the government’s desire to free up more credit to consumers, the Urban Institute says in a release.

The HCAI measures the percentage of 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 been at the highest level since its low in 2011, according to the report.

The government channel – which includes the Federal Housing Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture Rural Development programs – reached its highest level since 2012 in the third quarter.

The private-label securities channel continued to stay close to or at the record low for the amount of default risk taken.

Significant space remains to safely expand the credit box, the Urban Institute says.

If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5% from 2001 to 2003 for the whole mortgage market, the think tank says in its report.

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