Lenders still have a tight grip on underwriting standards

Lenders are still clinging to tight underwriting standards, albeit slightly looser, as they reconcile smaller capacity with a sluggish housing market.

Mortgage credit availability rose by a tiny margin in June from May but is still hovering around its lowest level since early 2013, according to the Mortgage Bankers Association. The organization’s Mortgage Credit Availability Index was 96.6 in June, rising 0.1% from the prior month. A lower number indicates tighter lending standards, while a greater figure indicates loosening credit. 

“Lenders are streamlining their operations by offering fewer loan programs, with some exiting certain channels,” said Joel Kan, MBA vice president and deputy chief economist, in a press release. “Data from our Weekly Applications Survey indicated that June mortgage applications were more than 30% lower than a year ago and at the slowest pace since December 2022.”

Merger and acquisition activity has flourished in the industry, while some lenders have shuttered wholesale divisions and laid off numerous workers in response to the end of the origination boom. Prospective borrowers meanwhile recently showed some hesitancy to enter the market with mortgage rates above 6.8%.

The MBA’s Index analyzes data from ICE Mortgage Technology and was benchmarked to a score of 100 in 2012. It’s calculated using underwriting criteria for more than 95 lenders including borrowers’ credit scores, loan-to-value ratios and other data in a proprietary formula.

The Index rose significantly when originations were thriving in the past two years, but is now down 19% from last June, when it was at 119.6. The conventional loan index was unchanged compared with May, but the jumbo component was down for the second consecutive month, this time by 0.2% The government product index was also unchanged.

Homebuyers appear relegated to the sidelines with affordability near a 37-year low, according to a recent Black Knight analysis, and consumer confidence in the housing market plateauing at a low level, according to Fannie Mae. The government-sponsored entity has also continually pushed back its prediction of a modest recession, now to the fourth quarter of this year.