Higher Rates Impacting the Overall Mortgage Credit Landscape

According to the Mortgage Bankers Association (MBA), mortgage credit availability decreased in June, as found in the association’s monthly Mortgage Credit Availability Index (MCAI).

The MCAI fell slightly by 0.3% to 119.6 in June, as any slide in the MCAI indicates that lending standards are tightening, while increases in the Index indicate the loosening of credit standards. The Conventional MCAI increased 1.2%, while the Government MCAI decreased by 1.7%. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 1.4%, and the Conforming MCAI rose by 0.6%.

“Mortgage credit availability decreased slightly in June, as significantly higher mortgage rates compared to a year ago slowed refinance and purchase activity, and impacted the overall mortgage credit landscape. Credit availability was mixed by loan type, with the Conventional Index up 1.2%, and the Government Index down 1.7%,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Although there was reduced supply of lower credit score, high LTV rate-term refinance programs, the decline was offset by increased offerings for conventional ARM and high balance loans. With higher rates and elevated home prices, more prospective buyers are applying for ARMs, but activity remains below historical averages.”

The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). These metrics and underwriting criteria for over 95 lenders/investors are combined by MBA using data made available via ICE Mortgage Technology and a proprietary formula derived by the MBA to calculate the MCAI, a summary measure which indicates the availability of mortgage credit at a point in time.

Mortgage rates have levelled off of late, but remain above the 5%-mark, thus forcing many to reconsider their homebuying plans at the moment or putting the process on pause. And the uptick in rates has pushed refi volume to new lows, tailing off nearly 80% year-over-year.

ATTOM’s Q2 2022 U.S. Home Affordability Report found that median-priced single-family homes and condos were less affordable in the second quarter of 2022 compared to historical averages in 97% of counties across the nation. That was up from 69% of counties that were historically less affordable in Q2 of 2021, to the highest point since 2007.

“The decline in the government index was driven by the reduction in offerings for streamline refinance products from FHA and VA, which is the continuation of an ongoing trend reported in prior months,” said Kan.

The Total MCAI also has an expanded historical series that gives perspective on credit availability going back approximately 10-years (expanded historical series does not include Conventional, Government, Conforming, or Jumbo MCAI). The expanded historical series covers 2004-2010, and was created to provide historical context to the current series by showing how credit availability has changed over the last decade–including the housing crisis and ensuing recession. Data prior to March 31, 2011 was generated using less frequent and less complete data measured at six-month intervals and interpolated in the months between for charting purposes.