Higher rates may be loosening credit conditions, MBA says

Higher mortgage rates in September led lenders to loosen credit conditions, although trends are still historically tight, the Mortgage Bankers Association reported.

Its Mortgage Credit Availability Index rose by 0.6% in September to 97.2, from 96.6 in August and 102.5 one year ago.

The index value of 100 was set in March 2012, as the mortgage business was still dealing with the excesses of the Great Financial Crisis. September was the sixth consecutive month in which the index was under that benchmark.

Credit offerings were increased across the spectrum, but loan types like adjustable rate mortgages and non-qualified mortgages in particular benefitted.

"Lenders increased their loan offerings marginally to meet the changing needs of borrowers who are facing higher mortgage rates," said Joel Kan, MBA deputy chief economist. "There were more loan programs for ARM loans for borrowers seeking lower initial monthly payments and also some increases in non-QM product offerings."

The MCAI is broken down into two primary components, conventional and government, using product data from ICE Mortgage Technology.

The conventional index rose 0.6% month-to-month. This is further broken down into conforming and jumbo portions.

After tracking lower, the jumbo index rose for the second straight month, this time rising by 0.8%. Meanwhile, the metric looking at government-sponsored enterprise offerings was 0.2% higher. In August, the conforming index was at its lowest level since 2011.

The government MCAI also rose by 0.6% from the prior month.

Going forward, product offerings are likely to be driven by the twin factors of lender facility and consumer demand.

"Industry capacity has declined significantly since the peak originations months in 2021, and MBA expects to see further declines in originations volume, given the high interest rate environment and typical seasonal slowdown," Kan said.

Its September forecast was slightly lower than the prior month's to $1.68 trillion for 2023, versus $1.71 trillion in August. Purchase expectations were approximately $13 billion lower versus August, while for refinances, they were $12 billion less.

Since the end of last month, rates have continued to increase, the organization's data reported. That could lead to further loosening when October's index is compiled, although it is still early to be certain.

Last week's Mortgage Application Survey put the 30-year fixed at 7.53%, which the organization noted was the highest since 2000.