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Mortgage Credit Availability Falls to Nine-Year Low

According to the Mortgage Bankers Association (MBA), mortgage credit availability decreased in September, as per the MBA’s latest Mortgage Credit Availability Index (MCAI), a report that analyzes data from ICE Mortgage Technology. The MCAI fell by 5.4% to 102.5 in September, as a decline in the MCAI indicates that lending standards are tightening, while increases in the MCAI indicate a loosening of credit. The Index was benchmarked to 100 in March 2012.

By loan type, the Conventional MCAI decreased 4.9%, while the Government MCAI decreased by 5.7%. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 5.8%, and the Conforming MCAI fell by 3.6%.

"Credit availability fell to the lowest level since March 2013–the seventh consecutive month of tightening,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting.

After the Federal Reserve’s latest move to curb inflation, the fifth rate hike in the year 2022 alone, mortgage rates have soared to highs last seen 20 years ago, edging closer to the 7% mark. However, continued record high rates have forced refi volume down to a 22-year low.

“With the likelihood of a weakening economy, which would lead to an increase in delinquencies, there was a smaller appetite for lower credit score and high LTV loan programs, along with a reduction in government streamline refinance programs,” added Kan. “As mortgage rates have more than doubled over the past year, resulting in a drop in refinance activity, lenders have worked to reduce excess capacity and costs by eliminating underutilized loan programs. All the component indices declined last month, with most of the indices falling to their lowest levels in over a year. In particular, the government credit availability index has declined in seven of the last eight months to its lowest level since April 2013.”

Buyers continue to struggle with affordability concerns, as ATTOM’s 2022 U.S. Home Affordability Report for the third quarter shows that median-priced single-family homes and condos remain less affordable in Q3 of 2022 compared to historical averages in 99% of counties across the nation. Numbers continue to be far above the near 70% of counties that were historically less affordable in Q3 of 2021—marking yet another high point reached during the country's 11-year housing market boom.

"Homeownership remains largely unaffordable for the majority of homebuyers in the majority of markets across the country," said Rick Sharga, EVP of Market Intelligence at ATTOM. "While home prices have declined a bit quarter-over-quarter, they're still higher than they were a year ago, and interest rates have essentially doubled. Many prospective homebuyers simply can't afford the home they hoped to buy, and in many cases no longer qualify for the mortgage they'd need."

The Bureau of Labor Statistics (BLS) reported last week that the American economy added 263,000 jobs in the month of September, as the unemployment rate edged back down to a more than 50-year low of 3.5%.

“In the household survey, the unemployment rate ticked back down to 3.5% as the size of the labor force fell slightly in September, with the participation rate falling one-tenth to 62.3%, erasing some of the prior month’s gains,” said Douglas G. Duncan, Chief Economist at Fannie Mae, on the latest BLS report. “This figure continues to be volatile and remains below the pre-pandemic peak, as many workers are still hesitant to return from the sidelines. Wages grew at a 5% year-over-year pace in September, another clear indicator that firms are looking to hire workers. Wage gains likely will further contribute to inflationary pressures in the economy. Finally, we note that residential construction employment (including specialty trade contractors) grew by 6,400 in September; we believe continued job growth in this sector likely will be needed to help builders fulfill their current orders.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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