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Mortgage Credit Availability Decreased

Keith Griffin
Sep 11, 2020
mortgage credit tightens

Mortgage credit availability decreased by almost 5% in August to its lowest levels in almost six-and-a-half years. The credit tightening is caused in part by a reduction in supply from traditional and non-traditional markets.
That’s according to the Mortgage Credit Availability Index, a report from the Mortgage Bankers Association that analyzes data from Ellie Mae’s AllRegs Market Clarity business information tool. The index fell by 4.7% to 120.9 in August.
The Mortgage Credit Availability Index fluctuated over the summer. It hit a six-year low in June but rebounded in July before dropping once again in August.
“Mortgage credit supply fell to its lowest level since March 2014, driven by a reduction in supply from both conventional and government segments of the market,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Additionally, both conforming and jumbo sub-indexes fell by almost 9% each, with the conforming index declining to the lowest reading since MBA’s series began in 2011.
“Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound. A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also continued to drive the overall decline in credit availability.”
Added Kan, “Jumbo credit availability has fallen around 59% since the pre-pandemic months, and data from MBA’s Weekly Applications Survey showed that jumbo mortgage rates stayed over 30 basis points higher than conforming rates in August, which is another indication of the reduced investor appetite for those loans.”
A decline in the index indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The conventional availability index decreased 8.7%, while the government index decreased by 1.4%. Of the component indices of the conventional index, the jumbo index decreased by 8.9%, and the conforming index fell by 8.6%.
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