Mortgage credit offerings fall to a 9-year low

For the fifth straight month, mortgage credit tightened with availability falling by the most in over two years to levels last seen over nine years ago, according to the Mortgage Bankers Association. 

The MBA's July Mortgage Credit Availability Index, a summary measure tracking the availability of mortgage credit, dropped 9% from the prior month to a reading of 108.8. In June, the index came in at 119.6, while a year ago the MCAI was 8.6% higher with a score of 119.1.  

"Credit availability fell last month to the lowest level since May 2013, as lenders streamlined their loan offerings in this declining volume environment," said Joel Kan, MBA's associate vice president of economic and industry forecasting, in a press release. Index scores are determined based on analyses of data provided by ICE Mortgage Technology.

The 9% decline in July also marked the largest monthly decrease since April 2020 — when  COVID-19 started making an impact in the U.S., Kan said. But the current reduction in availability reflects the industry-wide slowdown in originations this year, with volumes now 60% slower from last year's pace.

Mortgage companies in 2022 are finding consumers more cautious compared to a year ago, as some hold off on borrowing due to fast-moving interest rates and ongoing inflationary pressure. Economic trends led several housing-industry researchers last month to lower origination forecasts this year from earlier predictions.  

"Lenders have responded accordingly to the decrease in demand for refinance and purchase loans by reducing loan offerings, including for ARMs, cash-out refinances, and investment properties," Kan said.

The Conventional MCAI fell by 9.8% month over month, primarily due to decreased availability of jumbo products. The drop in the conventional index follows a 1.2% increase from June numbers. "The overall general tightening in credit availability also affected jumbo loans and non-QM loan programs." Kan said.

Downward pressure caused by rate and affordability issues have eaten away at demand for higher-cost properties in recent months. The Jumbo MCAI, a component within the conventional index, plunged by 13.4% month over month, as more reports emerged of cuts in asking prices. The steep July dropoff comes after the jumbo index posted an increase of 1.4% in June. After reaching a record high of $460,000 in March, the average purchase loan amount has hovered  near $410,000 over the past month.

Meanwhile, the conforming component of the Conventional index fell by a smaller 3.3% margin, a month after rising by 0.6%.

Government-loan product availability also declined in July, dropping by 8.4% compared to June, when it recorded a 1.7% dip.