Mortgage credit rises for first time in three months

Loan product availability increased in January after previously falling to its lowest point in 11 years a month earlier, the Mortgage Bankers Association reported. 

The MBA's Mortgage Credit Availability Index inched up by 0.7% to a reading of 92.7 to start the year, rising from 92.1 in December. But year over year, availability declined by 10.2% from 103.2 in a 12-month period that saw ongoing mortgage industry consolidation and downsizing amid a muted lending environment. The index was benchmarked to 100 in 2012 to reflect market conditions following the Great Financial Crisis.

"There was a slight increase in credit availability in January, driven by a greater number of conventional loan program offerings," said Joel Kan, MBA vice president and deputy chief economist, in a press release. Still, conventional products as well as overall availability finished near lows last seen early in the previous decade.

"Even though there was an increase in cash-out refinance programs available, credit supply overall is tight," Kan added. 

The index managed to squeeze out a small uptick after a fourth quarter which saw Citizens Bank leave wholesale originations, while some smaller institutions ceased mortgage lending altogether, contributing to December's low. 

"The challenging lending environment has pushed many lenders to reduce costs by cutting back on certain aspects of their business, including exiting origination channels, which has contributed to lower credit supply," Kan said. 

Pullbacks have continued in early 2024 with the recent announcement from Fairway Independent Mortgage that it would also exit wholesale, although the company's departure may have begun as early as December, industry sources suggested. 

Conventional offerings drove up January numbers, with availability up by 1.3% in the corresponding subindex. Within the conventional MCAI, the conforming component increased by 0.2%, while jumbo loan products saw a 1.9% lift. 

The increase in jumbo credit availability coincided with a surge in average loan balances of newly originated purchase mortgages last month, which briefly hit an 8-month high.

Meanwhile, the Government MCAI, which covers loans guaranteed through federal agency programs, came in flat, registering no month-to-month change.  

Greater credit availability in January arrived as mortgage lenders also saw signs of consumers returning to the market, with application volumes climbing higher in four out of the first five weeks this year after a late 2023 fall in interest rates. But the number of applications is still almost 13% lower on an annual basis. 

In December, the MBA forecasted total origination volume to come in at just over $2 billion this year, representing a 22% increase from an estimated $1.64 billion in 2023.