Mortgage Credit Squeeze: Decade-Low Availability and its Implications

08/14/2023

The Rise of the Million-Dollar Home

July’s mortgage landscape witnessed a distinct tightening, a scenario that harks back to figures seen a decade ago. The Mortgage Bankers Association (MBA) offers a detailed view of this shift, and the 0.3% decline it reports sets the stage for a deeper dive into this evolving dynamic.

The Root Causes

Declining Origination Volumes: A primary concern for lenders. As origination volumes have lessened, profitability for many has taken a hit. This, in turn, has compelled some to embark on cost-saving journeys, impacting credit availability in the process.

Liquidity Concerns: Particularly evident among jumbo lenders, liquidity challenges have been a catalyst for change. Joel Kan, a key figure at the MBA, sheds light on these concerns, highlighting the strategic reduction in loan product offerings by various institutions as they combat rising operational expenses.

The MCAI and What It Indicates

Fluctuations in the Mortgage Credit Availability Index (MCAI): The recent descent of the index to 96.3 speaks volumes about the caution lenders are exercising. A score below the March 2012 benchmark of 100 is a clear sign of a shift towards stricter lending standards.

Cash-Out Refinance Loans Losing Their Luster: Kan zeroes in on a notable trend—the declining allure of cash-out refinance loan programs. The culprit? A 30-year fixed mortgage rate reaching an average of 6.94% in July. This uptick, in stark contrast to July 2022’s figures, is nudging borrowers towards home equity and consumer loans.

A Closer Look at Specific Indices

The jumbo index, a barometer for larger loans, has seen a decline for three consecutive months. This trend showcases the recalibrations jumbo lenders are making in light of changing market dynamics.

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Other pivotal data insights include:

Conventional MCAI’s Movement: Tracking non-government-backed loans, it has reported a 0.5% dip.
Government MCAI’s Trajectory: Covering loan programs like FHA, VA, and USDA, a slight decline of 0.1% has been observed.

Jumbo vs. Conforming MCAI: While the Jumbo MCAI has seen a 0.8% reduction, the Conforming MCAI presents a counter-narrative with a 0.2% rise.

The myriad trends and figures paint a picture of a mortgage industry in flux. As the landscape continues to transform, adaptability will be key for lenders, borrowers, and industry stakeholders alike.