There is good news and bad news in the area of credit availability for borrowers currently participating in the housing market.
Credit availability is rising. However, the ability to qualify for a mortgage is nowhere near where it was in the early 2000s (although that may be a good thing when considering the housing market collapse of 2007-2009).
CoreLogic’s Housing Credit Index (HCI) measures variations in credit availability, taking into consideration housing credit underwriting attributes, such as borrowers’ credit score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), level of documentation and other factors.
A key finding by CoreLogic is that the average credit score of borrowers has increased from roughly 690 in 2001 to almost 750 in 2015.
“Looking at the recent trend, the HCI for 2015 indicates an increase in credit availability, but still remains significantly tighter than it was during the benchmark period (early 2000s),” writes Archana Pradhan for CoreLogic.
The 2015 increase in credit availability has been driven by a rise in the share of FHA (Federal Housing Administration) loans and new affordable conforming loans, says CoreLogic.
Starting in 2015, the Federal Housing Administration (FHA) reduced its annual insurance premium by 50 basis points and the FHA market share increased from 12 percent in 2014 to 16 percent in 2015.
Moreover, both Fannie Mae and Freddie Mac announced in December 2014 that they would start buying 97 percent LTV conventional mortgages from lenders to expand access to low-down payment credit.
“Even though these recent acts by the FHA and government-sponsored enterprises (GSEs) may have helped increase credit availability to some degree, the overall HCI indicates that lending standards are still considerably tighter than during the benchmark period,” writes Pradhan.