Mortgage Credit Loosened as Lenders Compete for Business

July 11, 2018 — 2:45 PM EDT

With a lack of available properties for sale, mortgage companies are aggressively competing for homebuyers' business, which resulted in mortgage credit loosening somewhat during June. According to the Mortgage Bankers Association (MBA), the Mortgage Credit Availability Index (MCAI) increased 0.2% in June to 181. That compares with a score of 100 in March 2012.

When the index is increasing, it indicates that lenders aren't being as stringent in making home loans. The MBA said that the Conventional MCAI index increased 5.5% during June, while the Government MCAI index decreased 3.9% in the same period. Within the Conventional MCAI Index, jumbo loans increased 9.3%.

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"Mortgage credit loosened slightly, led mainly by an increase in the jumbo MCAI, which represented fierce competition among lenders for prime jumbo borrowers," said Mike Fratantoni, the MBA's chief economist, in a press release highlighting the results of the index. "However, this loosening was almost completely offset by a decline in credit for government loan programs. The Government MCAI has tightened in recent months, driven largely by policy actions to reduce churning in the Veterans Administration's Interest Rate Reduction Refinance Loan program."

Rising mortgage rates coupled with increasing home property values and a dearth of homes on the market had led to concerns that the real estate industry could face a slowdown heading into the spring real estate season. While rising mortgage rates have hurt mortgage application growth this year, more recently, rates have stayed steady or decreased, which bodes well for the industry.

According to MBA data, for the week ending July 6, mortgage applications increased 2.5% compared with a week earlier. On an unadjusted basis, the index fell 18% compared with the previous week. The Refinance Index decreased 4% from the previous week and is now at its lowest level since December 2000. The seasonally adjusted Purchase Index increased 7% from the week earlier, while on an unadjusted basis, it was down 15% from the previous week. Both refinance and adjustable-rate mortgage application activity declined, with the refinance share of mortgage activity hitting its lowest level since August 2008. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications, the MBA said.

During the week ending July 6, the MBA noted that the average interest rate for a 30-year fixed-rate mortgage with loan balances of $453,100 or less decreased to 4.76% from 4.79%, while the rate for a 30-year fixed-rate mortgage with a loan balance above $453,100 fell to 4.68% from 4.71%.