Mortgage credit declines for fourth straight month

Mortgage credit availability declined for the fourth straight month in June, but conventional offerings saw a rebound, as rate volatility continues to weigh on the market, according to the Mortgage Bankers Association.

The Mortgage Credit Availability Index, or MCAI, a measure of home-loan-product availability based on MBA analysis of ICE Mortgage Technology data, edged down 0.3% to a reading of 119.6, falling from 120 in May, but up from 118.6 in June 2021. The current level is the lowest since July of last year and 34% off the pre-pandemic mark of 181.3 in February 2020. A lowering of the index indicates tightening lending standards.

“Significantly higher mortgage rates compared to a year ago slowed refinance and purchase activity and impacted the overall mortgage credit landscape,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. 

Thirty-year averages surged mid June by the largest margin in over a decade following the Federal Reserve’s announcement of an increase in the federal funds rate, but eased in the final week. 

The rate spike helped drive down the government MCAI, which tracks the availability of loans sponsored by the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture, by 1.7%. The slide comes after a 1.3% drop-off between April and May. Decreased affordability, due in part to the rate environment, has contributed to lower home-buying sentiment among buyers, while refinance incentive has fallen off completely for a majority of homeowners at current rate levels. 

“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,” Kan said. 

But credit availability in the conventional market turned around from May, rising by 1.2% after a decline of 0.4% one month earlier.

“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,” Kan said.

Within the conventional MCAI, the jumbo index increased by 1.4%, while the conforming component rose by 0.6%. 

Greater borrower demand for adjustable-rate mortgages has brought about a 2022 resurgence in the loan type, as consumers seek relief in the higher-price, higher-rate environment, Kan said. But activity still remains below historical levels. While also affected by the interest-rate surge, jumbo-loan averages have not increased at the same pace as conforming products. Jumbo-credit availability has increased, even as recent research shows volumes declining thanks to a hike in the conforming loan limit this year.