Lending standards tightened in July with the mortgage credit availability index (MCAI) dropping 9%, the largest monthly drop since April 2020, according to the Mortgage Bankers Association (MBA).
The MCAI fell to 108.8 in July as lenders streamlined their loan offerings in a shrinking mortgage origination environment, said Joel Kan, associate vice president of economic and industry forecasting at MBA. A decline of the index, benchmarked to 100 in March 2012, indicates lending standards are tightening while an increase suggests loosening credit.
“Lenders have responded accordingly to the decrease in demand for refinance and purchase loans by reducing loan offerings, including for adjustable-rate mortgages (ARMs), cash-out refinances, and investment properties,” Kan said. “The overall general tightening in credit availability also affected jumbo loans and non-QM loan programs.”
Credit tightening was most notable in the government and jumbo segments.
Conventional MCAI, which does not include loans backed by the government, decreased 9.8%, and Government MCAI, which examines FHA, VA and USDA loan programs, dropped 8.4%. Of the component indices of the Conventional MCAI, the Jumbo MCAI fell by 13.4% and the Conforming MCAI decreased by 3.3%.
The drop in mortgage credit availability follows volatile mortgage rates that remained in the 5% range before falling to 4.99% in the first week of August, according to the purchase mortgage survey from Freddie Mac.
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Demand for mortgage loans last month trended downward before it ticked up the last week of July, with loan application volume increasing 1.15% from the prior week. Borrower demand, however, remains weak compared to a year ago, the MBA said.
Mortgage application volume for refis dropped 82.6% from the last week of July 2021. For purchase mortgage applications, it fell about 16% compared with the same period last year.
Kan had projected that lower rates combined with signs of more inventory coming to the market could lead to a rebound in purchase activity.
The latest mortgage monitor report from Black Knight showed a cool down in the housing market as June saw record-low home price appreciation and the largest single-month increase of for-sale inventory in 12 years.
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