Rising mortgage credit availability to help offset rising rates

Banks and other lending institutions clamped down on lending standards when the pandemic hit, but mortgage credit availability has been easing in recent months.

The Mortgage Bankers Association’s Mortgage Credit Availability Index rose 0.8% in December, indicating lending standards are loosening, not tightening. Some of the recent increase in credit availability is from expanded offerings of lower credit score loan programs, which is good news for potential qualified borrowers who are most impacted by rising rates and affordability challenges.

“I think this is going to be helping a lot of households who either are new in terms of their credit history, or had some kind of credit event that might have lowered their scores over the last two years,” said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association in D.C.

While the overall supply of mortgage credit in December was up only 3% compared to a year earlier, there was a 34% increase in jumbo credit availability. Those are nonconforming loans that are too big for Fannie Mae and Freddie Mac. Those high-end borrowers often have lower risk profiles.

“Typically, these are borrowers who have better credit, whether it is higher income or better credit. It is really a combination of everything. And a lot of these are also put on bank balance sheets, so they can determine their own credit requirements,” Kan said.

Mortgage credit availability is still below the average seen in the 10 years the Mortgage Bankers Association has been calculating its Mortgage Credit Availability Index, but it is now the highest level since May 2021.

With rising mortgage rates, and home prices that are still rising, Kan said he believes further easing of mortgage lending standards will be important for the housing market’s health in 2022.

“I think credit availability in the coming year will be an extremely important part of the housing market. With any gradual increase in rates, that will continue to put pressure on housing affordability,” he said.

The association calculates its mortgage credit availability index based on borrower eligibility, such as credit scores, loan types, and loan-to-value ratios, as well as underwriting criteria for more than 95 lenders and investors.

Jeff Clabaugh

Jeff Clabaugh has spent 20 years covering the Washington region's economy and financial markets for WTOP as part of a partnership with the Washington Business Journal, and officially joined the WTOP newsroom staff in January 2016.

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