Mortgage credit standards loosen for first time since July

With the scorching market keeping up despite the pandemic and lenders getting used to the new normal, October saw mortgage credit availability increase, reversing a trend that had persisted since the summer.

The Mortgage Credit Availability Index (MCAI), a metric maintained by the Mortgage Bankers Association (MBA) to measure credit availability, increased month over month by 2.3% to a reading of 121.3 in October. A rising index means that lenders are loosening their credit standards, while decreases in the index denote tightening credit.

The Conventional MCAI, a sub-index gauging credit availability for conventional loans, rose 5.1% from September. The Government MCAI, which tracks credit for loans backed by the Federal Housing Administration, Department of Veteran Affairs and U.S. Department of Agriculture, was essentially flat, inching upward 0.2%.

Due to the severe drop posted earlier in the year, credit availability continues to hover around low levels unseen since 2014, noted Joel Kan, the MBA’s associate vice president of economic and industry Forecasting. October’s small increase, however, represents the first notable shift from market tendencies seen since the first few months of the pandemic.

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“Credit availability increased in October for the first time since July,” said Kan. “The ongoing economic recovery and improving labor market led to a rise in credit supply for various loan types.”

Notably, Kan observed, credit availability for low credit score and higher loan-to-value ratio (LTV) loans increased in October. Availability for such loan products had suffered as lenders shied away from risk during the COVID-19 crisis.

Jumbo loans also saw an October resurgence, said Kan.

“After seeing a drop in supply of around 60% since the onset of the pandemic, the jumbo [sub-index of the Conventional MCAI] rebounded 6.1% in October to its highest level since July of this year,” he said. The Conforming MCAI, the Conventional MCAI’s other component index, increased 4.1%.

 “There was also an increase in ARM (adjustable rate mortgage) loan supply, likely driven by the [government sponsored enterprises’] September 30 deadline for LIBOR ARM loan applications,” Kan added. “More lenders rolled out SOFR ARMs following the deadline.”


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