Jumbos, ARMs drive uptick in credit availability

Home lending credit reversed course following a one-month dip, with availability returning to the upside even as conforming product offerings declined in July, according to the Mortgage Bankers Association.  

The MBA's credit availability index edged up 0.2% month over month to a reading of 103.9. The score rose from 103.7 in June, which was the first credit pullback in seven months.

Compared to July 2024's reading of 99.1, the latest figure was also 5.9% higher. The MCAI was benchmarked in 2012, with a score of 100 reflecting conditions in March that year. Higher numbers point to rising availability, while lower scores indicate credit tightening. 

Growth among jumbo and adjustable-rate mortgages offset the contraction in conforming credit, as lenders also originated a noticeable number of ARMs in recent weeks, MBA said. 

"This development was consistent with a steeper yield curve and the jumbo-conforming spread back in negative territory. The average jumbo rate was around 8 basis points lower than the average conforming rate in July, MBA vice president and deputy chief economist Joel Kan said in a press release. 

Adjustable-rate borrowers responded to the rate developments to drive seasonally adjusted growth of 24.2% in ARM applications for much of the past month, according to MBA's most recent weekly mortgage lender survey. 

ARM applications also garnered an 8.5% share of activity relative to total volume at the end of July. ARM interest surged in the latter half of the month after spending much of the summer with shares in a range of 7% to 8%. 

How conventional product availability grew

The rise in jumbo availability pushed the conventional subindex 0.5% higher from the previous month. Like the overall MCAI, conventional credit data, similarly, headed upward again after a June drop. 

Of the two contributing components in the conventional MCAI, jumbo lending saw an 0.9% increase from June to July to make up for the 0.5% fall in conforming credit. 

"Credit availability of conforming loans declined slightly over the month, mostly due to a pullback in renovation loans," he noted.

Government-backed credit sees further pullback

Product availability shrank in the government-lending segment, consisting of loans backed by federal agencies. The 0.2% monthly drop continued trends observed earlier this summer. MBA previously noted fewer government products on offer, with mortgage industry concerns about the repayment ability among borrowers with lower credit scores playing a role. 

Downward movement in July's government MCAI, though, came in more muted than the prior month's 1.7% fall. With lower balances, loans guaranteed by government agencies will typically have smaller balances and offer options to borrowers with a limited credit history.