Mortgage credit availability has dropped to its lowest point in a decade, signaling tighter lending standards in the housing market. According to the Mortgage Bankers Association (MBA), its monthly index measuring credit availability fell in July to the lowest level since 2013, reflecting a significant contraction in the availability of home loans.
Tightening Lending Standards
The MBA’s data reveals that the overall availability of mortgages decreased in July, with jumbo loans seeing the largest decline. Jumbo loans, which exceed the limits set by Fannie Mae and Freddie Mac, are typically held by banks on their balance sheets rather than being sold in the secondary market. The reduction in jumbo loan availability suggests that banks are grappling with liquidity challenges and are becoming more selective in their lending practices.
This decline in credit availability comes as the housing market is already facing significant headwinds, including higher mortgage rates and decreased home loan demand. Mortgage applications to purchase homes were 26% lower in July than they were a year ago, and refinance demand has dropped by 32%, according to the MBA’s most recent weekly survey.
Impact on Lenders and Borrowers
Joel Kan, an economist at the MBA, explained that lower origination volumes are resulting in reduced profitability for many lenders, which in turn leads to fewer loan product offerings. As lenders tighten their standards to reduce operational costs, some borrowers are turning to alternatives like home equity lines of credit (HELOCs) instead of refinancing their homes.
The average rate on a 30-year fixed mortgage is currently hovering around 7%, more than double the rate from just two years ago when refinancing activity was at its peak. This higher mortgage rate has made it less appealing for homeowners to refinance, especially those who are looking to pull cash out of their properties. The trade-off of moving from a 3% mortgage rate to a 7% rate is an unattractive option for many.
Conclusion
The tightening of credit availability and the increased difficulty in qualifying for mortgages highlight the challenges facing both borrowers and lenders in today’s housing market. With higher mortgage rates and fewer loan products available, homebuyers and homeowners seeking to refinance are feeling the pressure. As the market adjusts to these new realities, both lenders and borrowers may need to explore alternative financing options to navigate the changing landscape.