Delinquency risk leads to less credit for borrowers

Mortgage lenders tightened their offerings in June in what could be a sign of greater difficulty for borrowers looking to get into a new home. 

New data from the Mortgage Bankers Association showed less credit on offer in June, the first decrease since late 2024. The trade group's Mortgage Credit Availability Index, which tracks loan products in the market, fell 1.3% to 103.7 last month. The main index was dragged down primarily by declines in the government and conforming component indices. Despite the drop, the index is still up more than 9% year-over-year.

"With the job market softening, and increasing mortgage delinquency rates, some lenders are tightening up their credit offerings," said Joel Kan, MBA's vice president and deputy chief economist.

"Credit availability decreased in June after six months of growth, primarily led by fewer programs with low minimum credit scores," Kan added. 

The government MCAI, which measures federally backed mortgage availability from the Department of Veterans Affairs and Federal Housing Administration, fell 1.7%, while the conventional MCAI dipped only 1.2%. 

Within the conventional index, the jumbo MCAI was down 0.7% while conforming dropped 2.2%.

This is the first time since last November that the index has dropped month over month and comes off a multiyear high in May when the index reached 105.1. Despite the drop, the index is still well above where it was through all of 2024.

The MCAI was set at a base value of 100 in March 2012. It considers elements like credit score and laon-to-value ratio to calculate the availability of mortgage credit, with increases indicating that credit is loosening and declines representing tightening.

Why mortgage lenders may be acting cautiously

Some experts have started raising warning signs that delinquencies and foreclosures could rise in the coming months. A moratorium on foreclosures of VA-backed loans ended in January, leading to a subsequent surge in foreclosures. 

Intercontinental Exchange's mortgage unit also recently warned that a combination of student loan payments and a growing number of underwater loans could push more FHA-backed loans into delinquency. Foreclosure inquiries also jumped 13.3% in the second quarter of the year, according to data from LegalShield.

Homebuyers are already contending with high home prices and elevated mortgage rates, though dips on both fronts have prompted fresh sighs of relief in recent weeks. A tightening credit market risks throwing another wrench into some buyers' hopes, making it harder for them to qualify for a mortgage or afford the home they want.