Market shift drives credit availability decline in Q2

Mortgage credit availability declined slightly during the second quarter after reaching its peak in the first quarter, according to the credit availability index of the Housing Finance Policy Center (HFPC).

The index showed that availability fell to 5.7% from 5.9% in the first quarter. The index measures the percentage of home purchase loans that are likely to default and indicates the willingness of lenders to tolerate defaults.

HFPC said a shift in market composition primarily drove the overall decline. During the second quarter, the government channel lost market share to the portfolio channel, which has much tighter lending standards. Meanwhile, higher interest rates and lower refinance volumes allowed the government and portfolio channels to expand credit.

The second quarter also saw mortgage credit availability in the government-sponsored enterprise channel stay high after reaching its highest level in the second quarter since its low in 2011. The government channel reached its highest level since 2009 after increasing for four consecutive quarters. The private-label securities channel continued to stay close to or at the record low for the amount of default risk taken.

HFPC also said that there remains significant space to safely expand the credit box. 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.