Mortgage credit availability decreases for a second straight month

Mortgage credit availability inched downward for a second straight month in January, as jumbo products decreased and other categories came in flat.

The Mortgage Bankers Association Mortgage Credit Availability Index dropped 0.1% from December to a reading of 103.2 from 103.3, with a lowering of the score a sign of tightening. The score was determined through analysis of data provided by ICE Mortgage Technology and benchmarked to 100 in March 2012 based on lending conditions following the Great Recession.

Current credit remains close to a 10-year low, according to Joel Kan, MBA's vice president and deputy chief economist.

"Similar to December 2022, the availability of credit has been driven lower by declining originations and shrinking industry capacity as lenders have streamlined their operations to cope with lower volumes," Kan said in a press release.

The latest mortgage application numbers reported by the MBA show volumes are still down by 56% from a year ago and analysts do not expect growth to return until next year.

Despite subdued activity, the MBA sees the likelihood of credit opening up again in the near term. "Our forecast is for rates to continue to decline and housing activity — including home sales and new home construction — to gradually pick up as we approach the spring home buying season," Kan said.

"These developments could potentially change the credit availability landscape in the months ahead." 

A 0.3% drop in the Conventional MCAI drove the overall index down, as government-guaranteed loan availability saw no change. Within the conventional index, the jumbo component fell 0.4%, while conforming credit availability was flat. 

A new conforming-balance limit in January meant more loans qualified for sale to Fannie Mae and Freddie Mac at the start of the year, suddenly turning many mortgages that would have been classified as jumbo weeks earlier to conforming. Those changes may have played a role in drawing down interest for jumbo products. The conforming limit increased to $726,200 from $647,200 in 2022 and sits as high as $1,089,300 in high-cost markets.  

Demand for adjustable-rate mortgages has also fallen, contributing to tightening credit availability, Kan said. In mid October, the share of adjustable-rate mortgage applications climbed as high as 12.8% of total new loan volume, the highest since 2008, according to MBA's weekly survey of lenders. But by late December, ARM share had retreated to 7.3%.

"As mortgage rates declined over the past month, the share of adjustable-rate mortgages has fallen — consistent with a slight pullback in ARM offerings in this month's results," Kan said.