• After 18 months of signaling mortgage credit availability increasing, the Zillow Mortgage Access Index has been roughly flat for two straight quarters, indicating the ease with which consumers can obtain a mortgage may be plateauing.
• The two consecutive quarters of stagnation in the index lend credence to the idea that we have reached a new credit availability normal: Credit is much looser now than it was in the wake of the housing collapse, but stricter than during the bubble years.

For almost two years, mortgages had been getting increasingly easy to obtain. But over the past two quarters, that easing has stalled, potentially signaling a new normal in mortgage lending in which loans are much easier to obtain than the dark years of the recession, but not quite as easy as the go-go years of the housing boom.

The Zillow Mortgage Access Index (ZMAI) ended Q1 2015 at 65, down from Q4 2014’s reading of 67.7 (which itself was down from 69.6 in Q3 2014), but up from Q1 2014’s reading of 60.2. A reading of 100 indicates the ease in obtaining a mortgage is equivalent to conditions in January 2002. Readings below 100 signal it is more difficult for borrowers to obtain a mortgage than in 2002, while readings above 100 indicate it is easier to obtain a mortgage than in 2002.

For 18 straight months beginning in early 2013 and continuing into late 2014, ZMAI grew at a remarkably steady pace, the longest streak of continuous improvement in the index’s history. By September 2014, ZMAI had climbed 58 percent of the way back from its September 2010 low-point to its earliest 2002 value.

But since then, ZMAI has strayed from its upward path (figure 1). The index fell in two of the final three months of 2014, and after starting 2015 on a positive note, fell in both February and March.

ZMAI tracks seven monthly measures of mortgage availability and boils them down into a single metric to determine how easy it is to get a mortgage:

• 10th percentile credit score[1]
• 90th percentile debt-to-income[2]
• mortgage rate spread[3]
• non-conforming prevalence[4]
• privately insured proportion[5]
• second mortgage prevalence[6]
• Zillow Mortgage quotes ratio[7]

Of the seven variables included in ZMAI, several seem to be driving the recent tightening in credit. The share of borrowers using private mortgage insurance instead of an FHA loan fell from 47.3 percent in September 2014 to 42.1 percent as of the end of Q1 2015. Over the same time, home equity loans and lines of credit (HELOCs) dropped as a percentage of all mortgages, from 12.3 percent to 10.5 percent. When the prevalence of HELOCs drops, it can be a sign of lenders’ unwillingness to offer second mortgages as a form of financing, making it more difficult for some borrowers to obtain a mortgage.

In March, those seeking a mortgage on Zillow with a credit score between 600 and 640 received roughly half (56 percent) the number of quotes of those with a score of 760, which was lower than in both January and February. The most recent Fannie Mae loan data[8] indicates that the 10th percentile credit scores of Fannie Mae purchased-loans – the lowest 10 percent of credit scores among those approved for a loan – rose over the first half of 2014. This could either be a sign of credit tightening as lenders shy away from applicants with lower credit scores, or the byproduct of a healthier economy in which potential homebuyers have better overall credit histories.

The two consecutive quarters of stagnation in the index lend credence to the idea that we have reached a new credit availability normal: Credit is much looser now than it was in the wake of the housing collapse, but stricter than during the bubble years. The days of rapid credit access improvement may be behind us, but despite the recent stall, it remains a good time to buy for those who can find an on-budget home and qualify for a loan. Conventional mortgage rates remain stubbornly low, and buying a home with conventional mortgage financing remains a bargain compared to renting.

[1] The 10th percentile credit score of conventional mortgage borrowers (the credit score of borrowers at the low end of the approved credit score spectrum).

[2] The 90th percentile debt-to-income ratio of conventional borrowers (approved borrowers devoting the highest percentage of their income to debt payments).

[3] The spread between 30-year fixed-rate mortgages and the 10-year treasury rate.

[4] The proportion of loans with 20 percent or more down that are non-conforming (those that cannot be sold to a GSE, meaning the risk must remain on the lender’s books).

[5] Amongst loans where the borrower puts less than 10 percent down on their home, what percentage of borrowers went the route of private mortgage insurance (versus obtaining an FHA loan).

[6] The proportion of loans extended in a month that are second mortgages on a home, which includes borrowers who were able to get a second mortgage to cover part of their down payment requirement (sometimes referred to as a piggyback loan).

[7] How many quotes a Zillow Mortgage inquirer with a credit score between 600 and 640 receives compared to an inquirer with a credit score of 760 or higher (e.g., in December 2014, inquirers in the lower bucket received just over half the number of quotes that a borrower in the higher credit score bucket received).

[8] Credit score data is reported with a lag. Zillow forecasts forward data from the last three quarters.