Mortgage credit is at its tightest in over a decade

Mortgage lending conditions during April tightened to the lowest level in over a decade, a pull-back related to the turmoil affecting the banking industry and a resulting view of risk, the Mortgage Bankers Association said.

Its Mortgage Credit Availability Index fell to 99.6, the lowest level since January 2013, a drop of 0.9% from March's 100.5; in April 2022 it was 121.1. Credit is now tighter than it was in March 2012, when the MCAI was benchmarked to 100.

Besides the issues that resulted in multiple bank failures in recent weeks, the uncertain economic outlook also weighed on lending criteria.

"The contraction was driven by reduced demand for loan programs such as certain adjustable-rate mortgages loans, cash-out and streamline refinances, and those with lower credit score requirements," said Joel Kan, the MBA's deputy chief economist, in a press release. "Government credit supply decreased for the third consecutive month, as industry capacity continues to adjust to significantly reduced origination volume, along with the expectations of a weakening economy later this year."

The government MCAI was down by 2.1% versus the prior month.

The conventional MCAI increased by 0.5% on a month-to-month basis, led by a 1.5% increase in the jumbo component, a program that many banks, including the failed First Republic Bank, use as a relationship builder with high-wealth clients. The conforming portion of the conventional MCAI fell by 1.1% from March.

But the housing shortage is impacting the market more than what lenders are willing to do.

"Even with high mortgage rates and reduced credit availability, the lack of for-sale inventory continues to be the biggest hurdle to more home purchase growth this year," Kan said.

MBA introduced the MCAI in June 2013, with analysis of data back through April of the prior year; it used less complete information to calculate the index back through June 2004.

It uses credit score, loan type, loan-to-value ratio and other information from over 95 lenders/investors obtained from ICE Mortgage Technology.