Mortgage credit decreases for the 8th straight month

After decreasing to a nine-year low in September, mortgage credit availability inched down further last month, even as government-backed products saw a slight uptick, according to the Mortgage Bankers Association.

The MBA's Mortgage Credit Availability Index, an analysis of loan-product data compiled by ICE Mortgage Technology, fell for the eight consecutive month in October to a reading of 102. A decline in the MCAI indicates that lending standards are tightening.

The October number represented a decrease of 0.5% from the previous month's index reading of 102.5 and an almost 19% dip from a year ago, when the MCAI came in at 125.7. While the latest drop brings the index to its lowest point since March 2013, it was a more muted decline compared to steeper falloffs it experienced in September and over the summer.

"Much higher mortgage rates and the worsening outlook for the housing market and economy are behind the continued tightening in credit availability," said Joel Kan, MBA's vice president and deputy chief economist, in a press release.

"Lenders continue to reduce their capacity and are eliminating some loan offerings, including certain types of refinance loan products and others that require less than full borrower documentation." he said.

The effects of inflation and interest rates, now more than two times higher than at the start of the year, have noticeably wiped out most borrower demand, especially for refinances. Applications for refinance loans are currently running 87% below their pace from November 2021, according to the most recent weekly survey of MBA lenders. Similarly, Black Knight also recently reported refinances accounted for only 14% of rate locks in October.

Cuts in jumbo credit largely drove the overall MCAI down in October. The conventional MCAI, which includes component indices measuring conforming and jumbo loan availability, slipped 1.5%. But while the conforming index remained unchanged from September, the jumbo MCAI fell 2.5%, dropping for the fourth straight month. 

The downward movement in the conventional index offset a small increase in government-product availability. The government MCAI, which tracks mortgage offerings for mostly smaller-balance loans guaranteed by federal programs, climbed up 0.4% in October after declines for most of the year. 

The latest movements in jumbo and government MCAIs reflect to a degree recent housing-cost reports from various research organizations that show emerging signs of home prices falling on a month-over-month basis. 

At the same time, the overall trend of declining mortgage availability this year corresponds to the ongoing influx of news about staff reductions throughout 2022. While thousands of positions have been eliminated, some lenders have also shut their doors, notably in the non-QM space, which has seen the closures of Athas Capital, Sprout Mortgage and First Guaranty this year.