Mortgage credit availability dipped for three consecutive months, largely due to shrinking refinance loans, according to the monthly Mortgage Credit Availability Index, (MCAI) which fell by 0.9% to 120 in May, the lowest level since July 2021, according to the Mortgage Bankers Association.
A decline of the index, benchmarked to 100 in March 2012, indicates lending standards are tightening while an increase suggests loosening credit.
“The index remains more than 30 percent below pre-pandemic levels, as credit tightening has occurred in recent months around refinance loan programs,” said Joel Kan, associate vice president of economic and industry forecasting at MBA.
Credit tightening was most notable in the government and jumbo segments, Kan added.
Both the Conventional MCAI, which does not include loans backed by the government, decreased 0.4% and the Government MCAI, which examines FHA, VA, and USDA loan programs, dropped 1.3%
Of the component indices of the Conventional MCAI, the Jumbo MCAI fell by 1.1% and the Conforming MCAI rose by 1%.
“The decrease in government credit was driven mainly by a reduction in streamline refinance programs, as mortgage rates increased sharply through May, slowing refinance activity. Jumbo credit availability, which was starting to see a more meaningful recovery from 2020s pullback, declined after three months of expansion,” Kan said.
The drop in mortgage credit availability follows a free fall of refinance applications driven by rising mortgage rates — 5.23% as of June 9 — measured by Freddie Mac. While purchase mortgage rates fell for three consecutive weeks after hitting 5.3% in the second week of May, they recently rebounded, according to the Freddie Mac PMMS, and remained high enough to still suppress refinance activity.
MBAs index for refinance applications dropped 6% for the week ending June 3 from the previous week. Compared to the same week a year ago, the index was 75% lower.
Weakness in both refinance and purchase applications drove down mortgage application volume last week. MBAs Market Composite Index dropped 6.5%, marking the lowest level in 22 years.
The persistently low housing inventory and the jump in mortgage rates during the past two months are putting pressure on the purchase market, Kan said, regarding the drop in mortgage application volume this week.
“These worsening affordability challenges have been particularly hard on prospective first-time buyers,” he said.
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