Mortgage credit rises in July, as ARMs, jumbos come back

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Mortgage credit has loosened for the first time in eight months, as lenders brought some adjustable rate and jumbo products back into the market, the Mortgage Bankers Association said.

"The improvement was more of a leveling off from the precipitous drop earlier this spring," said Joel Kan, the MBA's associate vice president of economic and industry forecasting in a press release.

"Credit availability is still over 30% lower than a year ago and near its lowest level since 2014. The July data signals that lenders saw conditions improve this summer, as forbearance requests flattened, and record-low mortgage rates spurred strong levels of purchase and refinance activity," Kan said.

July's Mortgage Credit Availability Index was 126.9, up 1.5% from June's 125 but well below July 2019's 189.

All MCAI components were higher on a month-to-month basis. The conventional index was up by 2.9%, led by a 5% rise in the jumbo portion, which was the first increase in the jumbo index since last November. The conforming portion increased by 1.2%.

Meanwhile, the government MCAI rose by 0.4% from the previous month.

But July's rise in credit availability could be transitory, Kan warned.

"There's evidence the resurgence of COVID-19 cases has cooled the job market recovery, which may temper borrower demand and the overall improvement in the economy," he said.

That in turn could lead lenders to once again restrict availability of the less mainstream product offerings, especially in the non-qualified mortgage category, which besides most jumbo loans, includes loans to self-employed borrowers and those whose credit scores are too low to qualify for conforming mortgages or don't qualify for a government-guaranteed product.

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