Mortgage Lending Standards Tighten, Supply at Lowest Levels Since July

Mortgage credit supply declined for the third month in a row as lending standards tightened, particularly with refinancing programs, putting supply at the lowest level since July 2021. 

The Mortgage Credit Availability Index (MCAI), a metric from the Mortgage Bankers Association that analyzes data from ICE Mortgage Technology, fell by 0.9 percent in May to sit at 120.0, remaining more than 30 percent below pre-pandemic levels.

Esther Phillips, senior vice president, director of sales at Key Mortgage Services tells GlobeSt.com that Fannie and Freddie appear to have tightened up their automated underwriting approvals. 

“Borrowers who were already razor tight on qualifying and would have received loan approvals before the most recent rate increases may not now,” Phillips said. “The combination of rising home prices and interest rates is a double whammy that is pricing some homebuyers out of qualifying thresholds. It’s important to keep in mind that rents are rising in tandem. Either way you look at it, housing expenses are rising for everyone.”

Tightening Most Notable in Jumbo Segment

“Last month’s tightening was most notable in the government and jumbo segments of the mortgage market,” Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said in prepared remarks. 

“The decrease in government credit was driven mainly by a reduction in streamline refinance programs, as mortgage rates increased sharply through May, slowing refinance activity. Jumbo credit availability, which was starting to see a more meaningful recovery from 2020’s pullback, declined after three months of expansion.”