Mortgage Credit Availability Edges Lower in September

Mortgage credit availability slipped slightly in September, according to the Mortgage Bankers Association's Mortgage Credit Availability Index, released Thursday, Oct. 8. The index fell 0.2% to 107.1. MBA says a lower reading indicates tighter lending standards. The index was set to 100 in March 2012.

Why this matters: The index tracks the menu of loan programs lenders offer, not how many applicants are approved. A small decline means a slightly narrower set of options, mostly at the edges of the conventional market.

Cover: a loan application folder under a gauge dial. Illustration created for mortgage.news; it does not depict a real person, property or document.

Where the tightening showed up

MBA reported that the Conventional MCAI fell 0.4% while the Government MCAI, which covers FHA, VA and USDA programs, was unchanged. Within conventional lending, the Jumbo MCAI fell 0.3% and the Conforming MCAI fell 0.2%.

Joel Kan, MBA's vice president and deputy chief economist, said in the release that lenders "tightened documentation requirements on conventional loans and reduced offerings of loans that allow for cash-out refinances and investor home purchases." He said jumbo credit availability declined for a second straight month, while "recent growth in non-agency loan programs continues to support this segment of the market." He added that the government index "has remained stable over the past three months."

What the index is, and what it is not

MBA builds the index from eligibility factors such as credit score, loan type and loan-to-value ratio across more than 95 lenders and investors, using data from ICE Mortgage Technology. It measures how widely programs are offered. It does not report denial rates, and it does not say whether a particular borrower will qualify. A borrower who fits standard guidelines may see no change at all.

Why originators should pay attention

The September changes are concentrated in products that already sit near the edge of guidelines: documentation-light conventional files, cash-out refinances and loans to investors. Those are the scenarios where a program that was available in August may have new overlays or may no longer be offered by a given investor.

Practical takeaway

• Originators: reconfirm investor eligibility for cash-out, investment-property and jumbo scenarios before quoting, rather than relying on last month's matrices.
• Borrowers seeking cash-out or investor financing: ask early which documents the lender will require, and expect that requirements may vary from one lender to another.
• FHA, VA and USDA borrowers: MBA's government index did not change in September.