Credit Tightens Further As Rates At Record Lows

By Jim Perskie

Economic difficulties caused by the coronavirus are making it harder for borrowers to obtain mortgage credit, even as interest rates have plunged to historic lows.

The Mortgage Bankers Association announced Thursday that the Mortgage Credit Availability Index (MCAI) dropped 12.2 percent in April, reflecting a tightening of the lending standards in the market.

“The abrupt weakening of the economy and job market – and the uncertainty in the outlook – drove credit availability down in April for the second consecutive month,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The overall index fell to its lowest level since December 2014, and the sub-indexes pointed to tightened credit supply for all loan types.

The MCAI fell by 12.2 percent to 133.5 in April. The Conventional MCAI decreased 15.2 percent, while the Government MCAI decreased by 9.5 percent. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 22.6 percent, and the Conforming MCAI fell by 7.1 percent. 

“The abrupt weakening of the economy and job market – and the uncertainty in the outlook – drove credit availability down in April for the second consecutive month,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The overall index fell to its lowest level since December 2014, and the sub-indexes pointed to tightened credit supply for all loan types.

“The decline was largely driven by lenders dropping many low credit score and high-LTV programs, as well as further reduction in jumbo and non-QM products,” Kan said. “There was also a large decline in loan offerings pertaining to cash-out refinances, given the GSEs’ constraints in purchasing cash-outs that have fallen into forbearance.”

The news comes as another 3.1 million Americans filed for unemployment benefits. Also Thursday, Freddie Mac announced that mortgage rates remain at near historic lows – 3.26 percent for a 30-year fixed-rate mortgage. That’s just slightly higher than last week’s 3.23 percent and well below last year’s rate of 4.10 percent.

“Mortgage rates stayed at or near record lows for the fifth straight week and homeowners are taking advantage with refinance activity remaining high,” said Sam Khater, Freddie Mac’s Chief Economist. “Although purchase demand declined 35 percent year-over-year in mid-April, demand has improved modestly over the last three weeks.”

The 15-year fixed-rate mortgage averaged 2.73 percent, down from last week’s 2.77 percent and last year’s 3.57 percent.