Washington, DC CNN —
Available credit for mortgages tightened in July, falling to its lowest level in a decade for potential home buyers, according to a report from the Mortgage Bankers Association released Tuesday that analyzes data from ICE Mortgage Technology.
MBA’s monthly index fell by 0.3% to 96.3 in July, the lowest level since 2013, as lenders pulled back on underused loan programs and liquidity concerns remained for some jumbo loan lenders, said Joel Kan, MBA’s vice president and deputy chief economist.
A decline in the Mortgage Credit Availability Index indicates that lending standards are tightening, while increases in the index would indicate loosening credit. The index was benchmarked to 100 in March 2012.
Mortgage credit availability has been tightening since the spring, according to MBA, with a slight uptick in availability in June, when levels were essentially unchanged. Credit availability then fell again in July, to a decade low.
In July, the conventional loan index, which examines non-government loan programs, decreased 0.5%. The government loan index, which examines Federal Housing Administration, Department of Veterans Affairs and US Department of Agriculture loan programs, was down by 0.1%.
The component of the conventional loan index for jumbo loans fell the most, dropping by 0.8%. Jumbo loans are those that exceed the limit for loans purchased by Freddie Mac and Fannie Mae, and are typically held on banks’ balance sheets. Some banks are proving less willing to take on those loans right now, amid liquidity concerns.
A lack of housing inventory in recent months has led to a slowdown for mortgage lenders, as home sellers remain locked in to their ultra-low mortgage rates and potential home buyers struggle to afford mortgage rates approaching 7%. Fewer people getting mortgages means lower profitability for lenders, said Kan. That has led to them offering fewer products in order to cut costs.
One key driver of this month’s decline was a drop in cash-out refinance loan programs, he said. The 30-year fixed mortgage rate averaged 6.94%, according to MBA, in July, more than a percentage point higher than it was in July 2022.
“This has significantly discouraged cash-out refinance activity, as borrowers turn to home equity and consumer loans instead,” Kan said.
The MCAI is calculated using several factors related to borrower eligibility, like credit score, loan type and loan-to-value ratio, according to MBA. These metrics and underwriting criteria for over 95 lenders or investors are combined by MBA using data made available via ICE Mortgage Technology.