Loosening of credit standards reaches a post-housing crisis high

As purchase applications stall in the heart of home buying season despite mortgage rates nearing two-year lows, lenders continued to loosen credit standards in May, according to the Mortgage Bankers Association.

Mortgage credit availability in May was driven by trends in jumbo lending, increasing 1.9% from April to 189.5, its highest level since 2008, according to the MBA's Mortgage Credit Availability Index. Additionally, it's a year-over-year jump of 8.9 points.

"Credit supply increased 2% in May, driven by the fifth straight gain in the jumbo index, which was up 7% and surpassed last month as the new survey high," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "The conventional index continues to grow, while the government index has generally been lower this year. Government credit supply continues to decline since peaking in 2017, as there are fewer streamlined refinance programs being offered."

The MCAI's conventional component rose 4.4% from April, as the jumbo segment jumped 6.8% and the conforming MCAI stepped up 0.9%. The government MCAI was the only component to take a hit, decreasing 0.6% in May. Each loan type's credit availability identifies trends of the respective segments.

A decline in the MCAI represents a tightening of standards and an increase suggests credit is loosening. The index is calculated by the MBA using loan program data from Ellie Mae's AllRegs Market Clarity database with a benchmark of 100 established in March 2012.

While the credit availability index has steadily grown — especially since the calendar flipped to 2019 — it pales in historical comparison to the boom period of 2006. Before the housing bubble popped, the index climbed close to 900.