Mortgage credit loosens for first time in nine months

Mortgage credit availability loosened for the first time in nine months, led by lenders adding to their jumbo loan programs whose interest rates have been lower than their conforming counterparts, the Mortgage Bankers Association said.

Its Mortgage Credit Availability Index, based on an analysis of loan-product data compiled by ICE Mortgage Technology, was 103.4 in November, up 1.4% from October’s 102. But even with the increase, the index remains at levels last seen over nine years ago.

For November 2021, the MCAI was 124.9.

Jumbo credit increased by 3.9% compared with the prior month, as rates for these loans started November by averaging 64 basis points lower than for conforming products, the MBA’s Weekly Application Survey reported. While the spreads narrowed to 14 basis points for the week of Nov. 25, the most recent survey that covers the end of the month had them widening back to 33 basis points.

Since jumbo rates are more competitive than conforming mortgages, “lenders are seeking to capture more volume in this space,” said Joel Kan, the MBA’s deputy chief economist, in a press release. “Most of last month’s increase came from more adjustable rate mortgage loan programs being offered.”

ARM offerings typically attract more borrower attention when mortgage rates rise.

The MBA defines conforming loans at those at or below $647,200; since September, in anticipation of the Federal Housing Finance Agency raising the Fannie Mae and Freddie Mac limits in 2023, several lenders expanded their conforming guidelines to acquire mortgages with balances as high as $715,000 and hold them on their balance sheet until after the new year starts.

At the end of November, the FHFA announced a base conforming limit of $726,200 and a high-cost area ceiling of $1,089,300, the effects of which should shift more loans into the government-sponsored enterprise market and away from portfolio lenders and private-label securitizers.

The jumbo index is a component of the Conventional MCAI, which increased by 2.8% on a month-to-month basis in November. Its other component, the Conforming MCAI, increased by 1%.

The government MCAI, the other portion of the overall index, was unchanged from October.