GSEs Expand Credit Box, Take More Lending Risk

mortgage-appWhile interest rates may be rising, there is one facet of lending that might still please homebuyers: Credit availability is high—at least with GSEs. According to the latest Housing Credit Availability Index, mortgage credit availability from GSEs Fannie Mae and Freddie Mac is at its highest level since 2011.

Between Q2 2011 and Q4 2016, the GSE market expanded the credit box and increased its total risk taken by 63 percent. According to the Housing Finance Policy Center, which releases the quarterly Index, this means the Enterprises “are willing to tolerate more defaults and are taking more risks, making it easier to get a loan.”

Portfolio and private-label securities, as well as FVR government lending—including the Federal Housing Administration, Department of Veterans Affairs, and Department of Agriculture Rural Development Program—did not take on more risk in Q4 2016, as the GSEs did. Instead, these channels “continued to stay close to or at the record low on the amount of default risk taken.”

Between Q3 2016 and Q4 2016, risk in the government lending channel declined to 9.8 percent—almost reaching its all-time low of 9.6 percent (reached in Q3 of 2013.)

“The GSE market has expanded the credit box for borrowers more effectively than the FVR government channel has in recent years,” the Index stated.

Risk in the portfolio and private-label securities market has dropped significantly since the housing bubble burst; the channel’s total default risk for Q4 2016 was just 2.2 percent—in 2006, it was well above 20 percent.

But despite the difference among lending channels, overall mortgage credit availability remained stable for Q4 of 2016. Still, the Index stated, there is room across the board to continue expanding credit availability.

“Significant space remains to safely expand the credit box,” the Index stated. “If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

The Housing Finance Policy Center will release its next Housing Credit Availability Index in July.


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