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Higher-Balance Loan Programs Drive Mortgage Credit Availability Up in July

Mortgage credit availability rose in July, mostly due to higher-balance loan programs, according to the Mortgage Bankers Association's (MBA) Mortgage Credit Availability Index (MCAI).

The MBA reported that the MCAI increased 2.9 percent to 125.5 in July compared to 122.0 in June, indicating that credit standards are loosening.

The conventional MCAI saw the greatest loosening of credit with an increase of 5.2 percent over the month, followed by the Jumbo MCAI with a 4.7 percent increase. Meanwhile, the Government MCAI  rose by 0.9 percent and the Conforming MCAI  rose by 0.4 percent.

"Credit availability increased in July, mainly driven by higher-balance loan programs," said Mike Fratantoni, MBA's chief economist. "Many investors are fine tuning their cash-out refinance requirements to meet increasing borrower demand for home equity financing. Some investors increased the availability of low down payment loans."

Source: Mortgage Bankers Association; Powered by Ellie Mae's AllRegs Market Clarity

After years of post-crisis credit tightening, the availability of mortgage credit has slowly edged up from Q3 2013 to Q1 2015, the Urban Institute’s (UI) Housing Finance Policy Center reported in July.

According to the UI's report, 4.6 percent of purchase loans that are likely to default increased to 5.7 percent, according to the Housing Credit Availability Index (HCAI). This was mostly caused by loans backed by the government-sponsored enterprises (GSEs)—Freddie Mac and Fannie Mae—and also through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture’s Rural Development (RD) program, jointly called FVR loans.

“Despite the recent uptick, very significant space remains to safely expand the credit box: even doubling the default risk would keep the level well within the pre-crisis standard of 12.5 percent,” the UI report said.

UI concluded that credit was much too relaxed in the housing bubble years, but now the tables have turned a bit too much.

“Although small progress has been made, significant room remains to safely expand the credit box, the UI report noted. “The mortgage market could have taken twice the default risk it took in the first quarter of 2015 and still have remained well within the cautious standard of 2001–03.”

Click here to view the MBA's Mortgage Credit Availability Index. 



About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.

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