Lending standards tightened in August amid a deteriorating economic outlook and signs of slowing house price growth.
The Mortgage Credit Availability Index (MCAI) edged down 0.5% to 108.3 in August from the previous month, according to the Mortgage Bankers Association (MBA). A decline in the MCAI, pegged at 100 in March 2012, indicates that lending standards are tightening while an increase in the index suggests an easing in credit.
“The availability of mortgage credit declined slightly in August as investors reduced their offerings of ARM and non-QM loan programs,” said Joel Kan, associate vice president of economic and industry forecasts at MBA. Kan added that some lenders continue to streamline their operations by dropping certain loan programs to simplify their offerings, with origination volume expected to decline about 48% to $2.3 billion in 2022 from $4.4 billion. last year.
“With a deteriorating economic outlook and signs of slowing house price growth, the appetite for riskier lending programs has been reduced,” Kan said.
The conventional MCAI, which does not include government-guaranteed loans, fell 1%, and the government MCAI, which reviews FHA, VA and USDA loan programs, remained essentially unchanged. Among the indices that make up the conventional MCAI, the MCAI Jumbo fell 0.7% and the MCAI Compliant fell 1.2%.
The drop in the availability of mortgage credit follows the volatility of mortgage rates which ended August at 5.8%, according to Black Knightof the Optimal Blue OBMMI pricing engine before falling back in July. With the fifth interest rate hike expected this month after the Federal Free Market Committee (FOMC), the 30-year fixed rate jumped to 5.98% on September 12.
The decrease in the availability of mortgage credit was offset by a slight increase in the new home equity line of credit (HELOC), a revolving line of credit that allows borrowers to draw money from the line of credit up to to a predefined limit. While workable equity, defined as the amount an owner can borrow against while maintaining a 20% equity stake, is expected to decline this quarter, it hit a record $11.5 trillion in the prior quarter.
“With overall home equity still at high levels, HELOCs could benefit borrowers who may want to forgo their current low mortgage rate, but want to use their home equity to support other spending plans. “, said Kan.
Amid a rapid decline in mortgage lending, non-bank lenders capitalized on rising home equity, a space that was dominated by custodian banks.
In August, rocket mortgage and his wholesale arm Rocket Pro TPO started offering home equity loans and Guaranteed rate introduces a digital HELOC. Companies considering deploying HELOC products include loanDeposit and New residential investment company.