Credit standards loosen as mortgage lenders embrace non-QM, jumbo loans

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Mortgage lending credit standards loosened a bit last month as investors displayed more interest in non-qualified mortgage and nonagency jumbo loans to stay competitive, according to the Mortgage Bankers Association.

Mortgage credit availability, which is driven by trends in jumbo lending, rose 2.1% in April to a reading of 186, according to the MBA's Mortgage Credit Availability Index. A decline in the MCAI represents a tightening of standards and an increase suggests credit is loosening; the index was benchmarked at 100 in March 2012.

"Investors continued a trend from March of further increasing their willingness to purchase more non-QM and nonagency jumbo loans," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "The high end of the purchase market had shown weakness earlier this year, before the recent decline in mortgage rates, and it appears investors are trying to remain competitive in that segment of the market."

Signs of a weaker purchase market were evident in the falling share of purchase loans closed in the six-month period between September 2018 and March 2019, which dropped from 71% to 65%, according to Ellie Mae. Positive consumer sentiments on buying a house also declined in April, according to Fannie Mae.

The MCAI component measuring conventional mortgages grew 4.3%, while the government MCAI remained unchanged. The jumbo MCAI jumped 6.8% to its highest recorded level since this data began being tracked in 2011. The MCAI for conforming loans increased 1.2%.

The MCAIs by loan type use the same principles to determine the overall MCAI, and help identify trends of the respective segments.

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