Credit Availability Declined In July

Mortgage credit availability fell in July, sinking to its lowest level since 2013, according to the Mortgage Bankers Association’s Mortgage Credit Availability Index.

The MCAI dropped by 0.3% to 96.3. Declines indicate that lending standards are tightening, while increases show loosening credit. The index was benchmarked to 100 in March 2012.

The Conventional MCAI fell 0.5%, while the Government MCAI slipped by 0.1%. Within the Conventional MCAI, the Jumo MCAI fell by 0.8% but the conforming MCAI increased, up 0.2%.

Lenders are pulling their least utilized loan programs to alleviate liquidity stress, MBA Vice President and Deputy Chief Economist Joel Kan noted.

“Declining origination volumes have led to lower profitability for many lenders, resulting in narrower loan product offerings to reduce operational costs. One key driver of this month’s decline was a drop in cash-out refinance loan programs,” he said.

“The 30-year fixed mortgage rate averaged 6.94% in July, more than a percentage point higher than July 2022, and this has significantly discouraged cash-out refinance activity, as borrowers turn to home equity and consumer loans instead. The jumbo index fell for the third straight month, as jumbo lenders further reduce the number of available loan programs.”

Refinance activity is down more than 30% YOY and the near future looks bleak. With more than 90% of homeowners locked in rates under 6%, rates would have to decline significantly for lenders to see any movement.

At the same time, lending itself is becoming tougher. IMBs lost money on each originated loan in 2022 thanks to declining volume, lower revenues, and higher costs.

But high-volume lenders who have kept borrowers coming may be bouncing back as home prices once again soar. Rocket reported a profit of $1 billion in Q2, beating analysts’ predictions.

The company has rolled out a slew of deals and products aimed at bringing in borrowers since the market downturn, which contributed to its success. Rocket CFO Brian Brown said the initiatives “exceeded expectations.”

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