Mortgage credit rises as more lower score loan products offered

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Lenders increased their product availability in October for only the second time since last November, helped by the economic recovery and improved labor market, the Mortgage Bankers Association said.

"There was an overall increase in credit availability for low credit score and higher loan-to-value loans, with conventional credit supply increasing 5.1%, and government credit staying essentially flat," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "Despite October's slight turnaround, credit availability remains constrained to near a low last seen in 2014."

The MBA's Mortgage Credit Availability Index increased 2.3% to 121.3 in October, compared with 118.6 in September and 185.1 in October 2019. July marked the only other month this year where lenders loosened their credit offerings.

Mortgage lenders cut their product offerings even before the pandemic started. Last November the index peaked at 188.9, near its post-housing boom high.

But because of the changed economic environment, even with record levels of mortgage originations this year, lenders furthered culled their credit extensions.

October's increase can be tied to two specific product trends. "After seeing a drop in supply of around 60% since the onset of the pandemic, the jumbo index rebounded 6.1% in October to its highest level since July of this year," Kan said. "There was also an increase in the adjustable-rate mortgage loan supply, likely driven by the government-sponsored enterprises' Sept. 30 deadline for Libor ARM loan applications. More lenders rolled out SOFR ARMs following the deadline."

The Conventional MCAI increased 5.1%, which besides that surge in its jumbo loan portion, also had a 4.1% increase in its conforming loan component.

On the other hand, the Government MCAI increased by 0.2%. This modest rise represents the third increase in this component in the past four months, which is a reversal in the long-term trend of tightening of this product offering.

The MBA calculates the MCAI using loan program data from Ellie Mae's AllRegs Market Clarity database with a benchmarked value of 100 based on conditions in March 2012. Decreases in the index indicate stricter lending standards.

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Underwriting Credit quality GSEs SOFR LIBOR Mortgage Bankers Association Secondary market Jumbo mortgages ARMs