Mortgage credit availability increased to 5.95% in Q1 2019 according to the latest housing credit availability index [1] (HCAI) from the Urban Institute, the highest level since 2013. The Urban Institute notes that increase was caused by an increase in risk taken in the portfolio and private-label securities channel.
Fannie Mae and Freddie Mac credit availability has been increasing steadily as well, and Urban notes that the index reached 3.0% for the first time since 2008 in Q3 2018, and reached 3.1% in Q1 2019. Meanwhile, the government channel (FVR), which includes the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture’s Rural Development program increased to 12.1%, the highest level since 2009.
The GSE market has seen an expansion in the credit box for borrowers, while the downward trend of credit availability in the GSE channel began a reversal in Q2 2011. From Q2 2011 to Q1 2019, the total risk taken by the GSE channel has more than doubled, from 1.4% to 3.1%. The total default risk the government loan channel is willing to take bottomed out at 9.6% in Q3 2013, and fluctuated around that level since.
The portfolio and private-label securities took on some of the highest risk, more than the government and GSE channels, during the bubble. After a sharp drop post-crisis, numbers have stabilized, with product risk fluctuating below 0.6% and borrower risk around 2.0% since 2013. Borrower risk increased in the Q1 2019, reaching 3.1%, driven primarily a decline in FICO scores and an increase in high-LTV lending.
To mitigate GSE risk, Fannie Mae recently announced [2] that it has secured commitments for two new front-end Credit Insurance Risk Transfer (CIRT) transactions of 2019. The two front-end deals, CIRT FE 2019-1 and CIRT FE 2019-2, will together cover up to $14 billion of loans to be acquired by Fannie Mae between May 2019 through April 2020, and transfer up to $455 million of credit risk on those covered loans. Fannie Mae has committed to acquire about $9.3 billion of insurance coverage on $359 billion of single-family loans through the CIRT program to date.