PT - JOURNAL ARTICLE AU - Wei Li AU - Laurie S. Goodman TI - A New Mortgage Credit Availability Index AID - 10.3905/jsf.2015.20.4.067 DP - 2015 Jan 31 TA - The Journal of Structured Finance PG - 67--83 VI - 20 IP - 4 4099 - https://pm-research.com/content/20/4/67.short 4100 - https://pm-research.com/content/20/4/67.full AB - There is no question that lending standards at the height of the bubble were way too loose and the system took on too much risk. The post-crisis period, however, is often characterized at the other extreme—with credit so tight that it has hampered the recovery. In this article, the authors develop a simple intuitive, transparent measure of credit availability based on the aggregate probability of default of a particular vintage at the time of origination. That is, if mortgage loans made at every point in time were expected to face the same probability of different economic scenarios (with respect to home prices, interest rates, and so on), how would the probability of default compare across origination dates? The article first discusses the limitations of the four most commonly cited indicators of mortgage credit accessibility, the Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices (SLO); the mortgage application denial rates based on annual Home Mortgage Disclosure Act (HMDA) data; the Mortgage Credit Availability Index by the Mortgage Bankers Association (MBA); and the median borrower’s credit score at origination. The article then describes the development of a new index that distills borrower credit profiles, loan products and terms, and macroeconomic conditions into a measurement of the weighted average probability of default for mortgages originated at a given time. The article illustrates the value of this measure by empirically exploring the varying risk appetites of the market as a whole as well as of individual market segments, which directly aids evidence-based policymaking on how to open the tight credit box.TOPICS: MBS and residential mortgage loans, financial crises and financial market history